Tsakos Energy Navigation Ltd (TEN) 2013 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 full-year 2013 financial results. We have with us Mr. John Stavropoulos, Chairman; Mr. Nikolas Tsakos, President and CEO; Mr. Paul Durham, Chief Financial Officer; and Mr. George Saroglou, Chief Operating Officer of the Company. (Operator Instructions). I must advise you the conference is being recorded today, Monday, March 17, 2014.

And I know pass the floor to Mr. Nicolas Bornozis, President, Capital Link, Investor Relations 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 year ended 2013 this morning. The press release has been distributed publicly. And in case you do not have a copy of it, please call us at 212-661-7566, or email us at ten@capitallink.com, and we will email a copy to you right away.

Please note that parallel to today's conference call, there is also a live audio and slide webcast which can be accessed on the Company's website on the front page at www.tenn.gr. The conference call will follow the presentation slides; so, please, we urge you to access our presentation on the webcast. Please note that the slides and webcast will be available as an archive on the Company's website after the conference call. Also please note that the slides of the webcast presentation are user-controlled. That means that by clicking on the proper button, you can move 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.

And 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, Nicolas. Happy St. Patrick's Day to everyone. Today we're all Irish, and hope the equity markets are green as well. Sorry to hear that some of you will have snow-covered parades, but so be it.

As we all know, the recession/depression of our industry has lasted five long and difficult years, with the resulting [fatality]. However, there are signs the worst is behind us. For the most part, the imbalances in supply and demand of tankers are mending. At the same time, the world's economy is recovering and has moved out of the intensive care ward.

As for TEN, we are very optimistic, because in the last two years, management has dramatically improved earnings visibility for the balance of this decade, and well beyond. On the base of our LNG, Neo Energy, it has added time charters of 10 or more years for two conventional Suezmaxes, two Suez shuttle tankers; and most recently, it entered into a contract with Statoil to build and then charter nine Aframaxes in 2016 and 2017. These undertakings will add cash flow and earnings for many years to come, which will provide the base and wherewithal for additional expansion. I'm not only optimistic; I'm excited.

My congratulations to our CEO, Nikolas Tsakos, and the entire Tsakos team. Thank you.

Chairman, thank you very much, and happy St. Patrick's Day to all of you in the United States. It's an occasion where we have a big part of our team is in New York for Capital Link and the [CMA] events, so I hope all of you will have a chance to ask any questions to them personally.

2013, as you will see, was a difficult year for crude carriers and the market in general. However, TEN was able to use this harsh environment to the Company's advantage once more, and come out of this five-year crisis stronger and bigger.

With a strong balance sheet and a stable banking record, TEN is ready to take advantage of the already improved market environment. The 15-year shuttle tanker employment with Petrobras and the recent nine Aframax crude carriers with Statoil are some of TEN's signature deals, as the Chairman referred to, that will go on for a very long time. And those two transactions would provide approximately in excess of $1.5 billion of gross income.

And also, as in the past, we try and renew our already very modern fleet when the newbuilding prices are on the low side. And 20% embedded fleet growth has been achieved against long-term contracts and no speculation. This way we do not damage -- we are already in a difficult situation, supply and demand carrier.

2014 has started positively. We believe that the worst is behind us, and we have used the difficult last three years to place the Company in a future expansion and future profitability, which we are all looking forward very, very, very soon.

And I will ask -- talking about profitability -- I will ask Paul Durham and George Saroglou from New York. George, please, if you don't mind to give us some of the background of today's results. And then Paul will go on the financials, and we'll be available for questions and answers. Thank you.

George in New York?

Thank you, Nikos. It's my pleasure to speak to all of you today from New York and provide you with details of the operation of another quarter and year. 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.

Let's turn to slide number 3 for the current fleet, which consists of 28 crude carriers, 19 in the water; plus 9 newbuilding Aframax tankers, which is a result of this strategic alliance with Statoil. We have 28 product tankers, all of them in the water, producing for TEN. We also have two LNG vessels, including one in the water and one on order.

The crude sector began to turn around dramatically at the end of 2013, and continued well into the first two months of 2014. With product tankers in healthy territory and the crude market's turnaround, which we expect to be sustained, the impact of the market [strength] improvement will be seen and felt in the bottom line during 2014.

The next slide gives some market highlights. Global activity strengthened during the second half of 2013. This trend is expected to continue further in 2014, with world GDP expected to be around 3.7%, from 3% the previous year. And further growth is forecasted in 2015. Global oil demand grew 1.3 million barrels per day during 2013, and is expected to grow by the same number in 2014. The order book, especially for crude tankers, is low by historical numbers, and especially sectors like the Suezmax and the Aframax. We expect little supply growth in the next two years, as Far Eastern yards appear to have covered their order book well into 2016.

Most of the orders in the last 18 months have been on product tankers, MRs, and LR2s. As the next slide shows, the overall tanker order book is now a little over 13.9% of the existing fleet, down from almost 40% back when the crisis began in 2008, and 22.3% in 2010. The end result calls for modest global fleet supply growth for the next two years.

Moving on to the corporate highlights for 2013, we have to say that TEN successfully completed the project for the DP2 shuttle tankers by ordering, building, and taking delivery on time of two-high specification vessels that passed charter, sea trials, and approval and began during the year -- the 15-year charter to Petrobras.

In December, the Company announced a strategic alliance with Statoil, initially for five Aframax tankers. The order recently, as we announced today, increased to nine vessels, as charter exercised their option for four more vessels. It's a milestone transaction for TEN, since these nine vessels will have another six-year charters with expansion options at that, which if exercised by Statoil in full, will run to 12 years.

The transaction serves TEN's stated policy of owning and operating a young fleet. The order to build the vessels at Daewoo with the additional options was concluded before the recent rise in newbuilding prices, as a result of the crude market's recent spike. The nine ordered vessels do not put any stress in the existing tanker order book, as these vessels are purpose built to serve specific client requirements.

The Company's pro forma fleet of 58 vessels include 48 vessels in operation, the nine Aframax crude carriers under construction will deliver [a window] in 2016 and 2017. And we also have in our newbuilding program one tri-fuel LNG vessel under construction. The Company also holds an option for one more LNG vessel, a sister vessel to the firm order. Our technology in LNG shipbuilding and trade requirements continue to evolve. TEN continues to monitor fleet development, aiming at building a homogenous LNG fleet.

The fleet is 100% double-hulled, very modern. The average age of the fleet is 7.1 years, versus 9 for the world fleet. This figure doesn't account for the Company's 10-vessel newbuilding program. We have 21 vessels with ice-class capabilities. 20 vessels out of the 48-vessel operating fleet have fixed-term employment; while nine vessels operate in profit sharing charters that, together with the fixed-term vessels, range from 1 to 15 years. We have 19 vessels operating in the spot market, which, together with the nine vessels that have profit-sharing arrangements in their rates, take full advantage of the improving freight rate environment, as their earning potential is totally tied to the fortune of the spot market, which for crude tankers has turned the corner at the end of 2013.

Thanks to our balanced time charter philosophy, we continue to operate the fleet at a very high utilization rate. Approximately 98% for the full year was the utilization of our fleet, when the average (technical difficulty) in 2013 was around 85%.

Moving on to the next slide, this has some of the financial highlights of the press release. In the five years of the market downturn, 2013 was clearly the better year for TEN, as we see in the results. We have seen 123% improvement in the operating income, registering $33.2 million in 2013 versus $14.9 million in 2012, a 15% increase in the EBITDA over the 2012 figure; much improved bottom-line results, despite the fact that we still have a net loss of $7.2 million versus $33.8 million in 2012.

We continue to have tight control on the expense side of the business, but not at the expense of quality or safety. We maintained a strong balance sheet and cash reserves by raising $100 million, also, in two preferred offerings in May and September of 2013. We have strengthened and enhanced the Company's growth prospects. We have continued our impeccable debt service during this five-year market downturn, claimed many victories, while maintaining firepower to grow responsibly, with newbuilding orders against projects with long-term employment, like the shuttle tankers; the long employment for Suezmax tankers Spyros K and Dimitris P; and the Statoil deal. And we entered our 21st year in the capital markets.

The next slide presents the corporate fleet as it stands right now. Again, very modern, very diverse, purpose-built, with the main focus being in the crude sector, the product sector, and of course, the LNG sector. We have one of the largest and most modern fleets in both categories. 21 vessels have ice-class designation, and we have built exclusively the fleet with newbuilding orders since 1997, primarily in Korea and Japan.

The next slide shows the clients of TEN, with whom the Company is doing repeat business over the years, thanks to the quality of service, fleet modernity, and the safety record of the enterprise fleet. In the same table, beside the names, we also list the top clients of TEN, and their share in the revenue of the Company during 2013.

The next slide is the employment slide. We have, as we speak, 20 vessels on time charter with fixed employment; nine vessels in profit sharing; and 19 vessels trading the spot market, COAs, and through pooling arrangements. So, excluding the fixed employed vessels, we have currently 28 vessels whose earnings, as we speak, take advantage of an improving rate environment.

How this translates dollar-wise, this is the next slide. And as we see at -- as of the year-end 2013, we have fixed 60% of the remaining available days of 2014, and 38% of the available 2015 fleet operating days. And we also have fixed 25% of the 2016 fleet operating days. Assuming only the minimum rates, TEN have secured 919 months of forward employment, or 2.7 years per vessel, and $877 million in minimum gross revenues.

The next slide talks about the sale and purchase activity. And what we would like to say that this is an area of focus for the Company, and is an integral part of the Company's operation. In an improving rate market environment, some of the older vessels -- we have the aim to strategically divest on some of the older assets. The maintenance of the young age profile of the fleet, preferably within the generation of acceptable capital gains, will be the main determinant in any decision regarding future vessel disposals. Of course, we are going to invest the proceeds in the business, as we have demonstrated through the past.

The next slide is the dividend history. The next dividend of $0.05 on the common shares will be paid on May 22. In total since 2002, we have paid almost $9.78 in cash dividends, or approximately $386.6 million. And this compares with the listing price in our IPO of $7.50, adjusted for the November 2007 two-to-one split. We have also two series of preferred shares outstanding. On the Series B issued in May 2013, we announced and paid three dividend so far. And on the Series C, which were issued on September 30, the first dividend was paid on January 30, 2014. That concludes the operational part of our presentation.

Paul will walk you through for the financial highlights for 2013. Paul?

Thank you, George, and thank you all for joining us today -- and from me, a happy St. Patrick's Day. You might not realize it in the States, but there are not many Englishmen who do not have some Irish blood in them, and we're very proud of it.

The operating income for 2013 doubles from 2012, to over $33 million. For quarter four, operating income was $5.2 million before impairment charges. These charges relate to four vessels over 10 years old. [All are] in excellent condition; and, given our young fleet strategy, good candidates for sale. The impairment will reduce future depreciation by nearly $2 million per annum.

As illustrated in our press release, we arrived at an adjusted net loss of $5.3 million for quarter four, after excluding from the reported net loss of $35.6 million, the impairment charges of $28.3 million and a $2 million one-off charge. The vast improvement by $27 million in 2013, over the 2012 adjusted loss, was mainly due to a generally improved market, the new shuttle tankers, the VLCC disposals in late 2012, to lower operating costs, much lower finance costs, and increased income from the LNG carriers.

In calculating loss per share, certain analysts seem not to take into account the preferred dividends. If we were to do the same, the adjusted loss per share, as opposed to the $0.66 reported, would be just $0.09, and in line if not better than consensus. Annual net revenue, at $285 million, was nearly 6% up, while quarter-four net revenue was 5% up. Annual daily average TCE was $17,900 in 2013, and nearly $17,200 in 2012. Quarter-four rates were over $17,400, against nearly $17,200 in the previous quarter four.

For the year, except for one spot market Aframax in dry dock, all the vessels have positive EBITDA totaling $134 million; $17 million more than 2012. Quarter four of both years generated EBITDA of $29 million. Aframax rates, mostly on spot, fell 5% in 2013, hurting results. The real upturn for Aframaxes was in this quarter one. Suezmaxes did catch the spike in quarter-four 2013, 6% up from quarter four, and dramatically up, if not spectacularly, into quarter one.

The product carriers had mixed results. On the one hand, we concluded new time charters at healthy rates; but in the spot market, rates withdrew somewhat from the buoyant levels of previous quarters. Daily average operating expenses per vessel for the year fell by nearly 2% to $7634, due to reduced spares and repairs. There was a modest 1% increase in the fourth quarter daily average per vessel. This was mainly due to a 5% weaker dollar against the euro, impacting crew expenses; and some newly introduced tonnage taxes. Otherwise, most other quarter-four expense categories were stable or improved over quarter-four 2012.

Quarter-four finance costs were $10 million, compared to nearly $14 million in the prior quarter four. And annual finance costs over $10 million down, mainly due to expiring interest rate swaps and non-hedging swap valuation. In quarter four, we repaid $24 million of debt, leaving $1.38 billion outstanding at the year-end. Net debt to capital fell to below 55%, and fair market value leverage restored to debt compliance at 60%. This was thanks to over $100 million raised in offerings in 2013, and improved vessel valuations. Indeed, our liquidity, leverage, debt, and profitability outlook has further improved in quarter one, partly due to the successful raising of over $90 million and the very strong freight market, which will make quarter one look very different from previous quarters.

We currently hold $220 million in cash. In addition to the LNG carrier under construction, we have contracted nine charter fixed crude Aframaxes for a total of $463 million contract price. Several banks are keen to participate in the financing of these vessels, and we will soon complete negotiations at competitive terms, which will also cover a large part of the pre-delivery installments.

And this concludes my comments. Now I will hand the call back to Nikolas.

Thank you, Paul, and thank you for giving us some hope for the next quarter, where we will most likely see things becoming better, and that's why we have put on this effort to be able to turn things around. And as I said, TEN has used the difficult market through the support of the shareholders, from the bankers, and our stellar record of operations in banking in growing the Company when the times are hard. And that's when we try to purchase our [lessons], because at the time it makes sense.

And with that in mind, we believe we have placed the Company in still a very good -- on a very good track to take advantage of a better cycle, as the Chairman and George talked about, the balance supply and demand final situation for the next two or three years. And I think we are on the top of the peer list of companies that can take advantage of changes in the products and the crude markets.

And with that, I would like to ask if any of you have any questions for any of us. Thank you.

(Operator Instructions). Joshua Katzeff, UBS.

I just wanted to start off maybe with the Aframax acquisitions. Can you maybe talk about delivery and price guidance for the Aframaxes? Is this a 2017 delivery, and maybe is it all on the same terms as the original order?

Yes. If you go to page 8 of the fleet list, then you can see that there are going to be four vessels scheduled for 2016. So that is one a quarter.

Okay.

And then, as you rightly said, the rest of it is in 2017.

And pricing is along the same lines as the original?

Pricing, yes. It's along the same lines. It depends, of course, if there are some sort of -- that could be requirements for ice-class vessels, which of course the rates and the price has an increase.

Okay. And with regard to the actual Statoil contract, you provided guidance of about $1 billion off gross revenue. But that assumes that the options are --

Yes, this is for nine ships for --

For 12 years?

For 12 years, excluding ice ratings.

Okay, so for the base rate, it should be roughly half of that?

For the -- the minimum period is six years. Yes, correct.

Okay, great. And then with regard to new acquisition opportunities, you just ordered nine crude tankers. How should we think about how you look at new investments going forward? Is it still in the crude space, or would you look to move into product or LNG or shuttle tankers again?

Well, I believe that the segment of the market that has been actually on top in the last couple of years is more the crude. For better or for worse, the product market has been well -- a lot of orders have gone into that market, most of them on the smaller size of product carriers, and most of them speculative orders. So I think from our side, we are going to be looking on crude and, of course, the LNG.

Got it. And switching over to the market, especially in the crude tanker market, your rates started off the year pretty strong. Towards February, March, they have come down a bit. When we think about earnings and actual vessel spot fixtures, should we see most of this weakness come up in Q2, rather than Q1?

We hope we are still -- we still have a couple of weeks or something left for Q1, but we believe that the Q1 is going to be a strong quarter. And we believe that the Q2 will be much better than last year, so hopefully still a strong quarter. We might be pleasantly surprised. But the market right now is well-balanced, so let's say it's worth delaying the Black Sea for political reasons, or anywhere in the world, can drive rates significantly higher.

Got it. Well, I appreciate the time. Thank you very much.

Ben Nolan, Stifel.

Thank you very much, and certainly thank you guys for taking my questions. My first question relates to the LNG markets. Actually, I suppose it's two questions. Number one, I believe that the option for the additional newbuilding must have been extended. Could you give us any -- or give me any idea about what the plan is for that, how long you have to exercise the option, whether or not you think that you will?

And then secondly, and maybe along with that, could you maybe talk about what the market is like right now for charters on -- certainly the existing newbuilding that you have on order, but also potentially for the other one? Is there a strong appetite to put those vessels on contract?

Thank you. Yes, as I said, we are aiming for another -- for an extension. Our existing vessel has another 2.5 years of employment. And most probably, it will be re-chartered with the same client, because operations -- they have been very, very happy operation with the performance of the ship. The ship, which is on order, we could charter it out today. But we believe, because it's a late of delivery, it's extend delivery, that it could be by end of this year, we will get a better rate from the market.

And on the option, there isn't actually -- we are very determined, and we believe in this market. Our technical people and commercial people are actually looking at all our technology developments in the power in the compulsion of the LNG. And that's why we have not taken this decision. Supposedly, if all the projects that are online right now will come in line by 2017, 2018, we will have a very positive supply and demand for the owners on gas.

And we are actually monitoring very carefully, also, the geopolitical situations. I'm sure that Europe might not want to be so much dependent on Russian oil, for various reasons, as it did in the past. And we have the floating pipelines to do the job. So the -- we look at it positively, and we are analyzing the right technology for the next year.

Okay, that's helpful. My next question is the other segment that had been talked about quite a bit, in terms of the future opportunities when you did the two shuttle tankers with Petrobras. Do you see that as still an area of strong potential growth? Are you hearing inquiry from Petrobras or elsewhere, with respect to potentially finding employment or building shuttle tankers?

Actually, yes, that's a very, very timely point, because we are actually today feeling our -- yes, we are discussing with a couple of major oil companies for shuttle tankers, Aframax shuttle tankers for the North Sea. So, there is demand for this. This is the segment that we have spent a lot of time and money training our crew, and we would like very much to continue that.

Okay, perfect. And then that gets to my last question that was a question about capital usage, and where you see the best use of your capital going forward -- whether it's on further expansion or renewal of the assets, or potentially something along the lines of debt repayment, or increases in the dividends. But it sounds like, given the opportunities, that more than likely that -- other than the scheduled amortization of debt, that you see the best use of capital as some of these new projects that you potentially could have coming online. Is that fair?

Yes. This is correct, yes.

Yes, okay. Okay, that does it for me. Thanks for taking my questions again.

Fotis Giannakoulis, Morgan Stanley.

Congratulations for the deal with Statoil. I want ask, in relation to this deal, about the possibility of setting up an MLP. I understand now that you have over $1 billion of assets, that they might be suitable for such a spinoff. Is this something that you are considering? You mentioned that you were looking at this opportunity in the past; but since then, it's been over a year.

I think this is a -- yes. I think that this is a very good point that you are making. I believe the MLP idea for us is always a very important idea, but it's only important if it actually makes sense for the Company. So I think with nine additional ships -- including the two shuttles, the three LNGs, and another couple of existing ships -- I think that creation of an LNG would be one of the largest LNGs out there -- the MLPs, one of the largest MLPs out there, with first-class charters and a very long employment.

So, well, as the reason that we have not moved, because we said that just to get five assets into an MLP was not really ideal. Now, with this size, I think we will be going ahead later this year.

So, you mean that, later ahead, will be filing [the SEC]? Is this something that we could potentially see going live at the end of 2014?

Yes, as I think we spoke, the majority of the new assets is upcoming in 2016. But I think the existing ships that will be almost a vessel docking the fleet, at least a vessel across from 2016 and 2017. And I think this will be the correct time to do something.

Thank you, Nick. One more question. You mentioned earlier that you are focusing more on assets with long-term employment. I assume that this also related to your MLP initiative here. Is there also a fundamental reason that you are moving towards more secured deals? And can these deals be in the product tanker sector? Or this is a sector that you have totally dismissed from your acquisition plans?

Oh, no. I would say the contrary. We are driven by our clients' needs. And we are a long-term energy constuctor. And I think it at the least well is very, very important to get a lot of employment, to get new clients; to get signature clients to serve long-term. Of course, we are balancing the fleet. It is more than 30% of our fleet is on the actual spot, and a lot of other vessels are with profit sharing arrangements. So I think we have followed our 70/30 approximately policy for almost since inception, and it has come out well for us.

If our charterers -- and there are charterers today that are talking to us about building [MRs] or LR2s, which are product carriers, we will do so against long-term employment. What you will not see TEN doing is taking huge, speculative actions and damaging furthermore the very weak market environment, by just hoping down an order for 10 MRs or 10 Suezmaxes and et cetera, et cetera. And this has never been our policy. And I hope for fewer and fewer people do this, because at the end of the day, it is just hurting the market.

And jumping on your last comment, we've seen that the MR market has been weak during the first months of 2014. Is this mainly because of additional orders, or this is something seasonal that is expected to reverse the next couple of months?

I think we have not to get things -- the newbuilding orders coming in. And this, I think, it is more of seasonal, and looking at the crude market growing stronger right now. However, our option ships, because they are specialized vessels, have performing very, very well. That's all I think we would say. We are in [the marshall] close to 20,000 since the beginning of the year. So actually as some other ships at 37,000 tonners and $3000 have hovered, the ones that we spot, in excess of 20,000 through the beginning of the year. So I think that this is a --.

And because we have a specialized niche market in Southeast Asia and the Caribbean and (technical difficulty), we trade with specific triangulation routes. So whether the general market, I think we will have better results in the first quarter with our spot MRs than last year.

And then -- I understand. Are all your vessels focused on trading on these specialized trades in Southeast Asia? Or there are other vessels that they are in other regions? And the reason I'm asking is we heard that one of your peers is shifting some of their MR vessels from the product, the clean trade to the crude trade. Is this something that you might be considering in doing on the vessels that they are not in the Southeast Asia region?

Yes, this is something we do, and that's why we have very modern ships that can actually switch relatively easy from the dirty to products. So, depending on the market, this is something -- we do it usually. So when I actually average the price of $20,000, this can be either in dirty products or clean. That's what the ships are doing.

Thank you very much, Nick.

(Operator Instructions). And as there are no further questions, we now pass the floor back for closing remarks.

Well, thank you very much, and we believe that we would like to thank our shareholders for their support. And as we said, we believe the five-year crisis -- the worst is over, and we're looking forward. But when we announce, most probably in May, our first quarter, we will have much, much better news. But even this 2013 will really improve numbers from 2012 and 2011.

And with that, I would like our Chairman for his closing remarks.

As you know, TEN is engaged in the transportation of liquids. And I presume today, on St. Patrick's Day, there will be some people that are transporting liquids. And all I'd suggest to you is, don't overload the cargo. (laughter) Have a good day. Thank you.

Thank you.

Thank you very much, gentlemen. With many thanks to all our speakers, this does conclude our conference. Thank you for participating. You may now disconnect.