Tsakos Energy Navigation Ltd (TEN) 2022 Q4 法說會逐字稿

Thank you for standing by, ladies and gentlemen, and welcome to Tsakos Energy Navigation Conference Call on the Fourth Quarter 2022 Financial Results. We have with us Mr. Takis Arapoglou, Chairman of the Board; Dr. Nikolas Tsakos, President and CEO's; Mr. Paul Durham, Chief Financial Officer; and Mr. George Saroglou, Chief Operating Officer of the company.

(Operator Instructions) I must advise you that this conference is being recorded today. And now I will pass the floor to Mr. Nicolas Bornozis, President of Capital Link, Investor Relation Adviser of Tsakos Energy Navigation. Please go ahead, sir.

Thank you very much, and good morning to all of our participants. I'm Nicolas Bornozis of Capital Link, Investor Relations Adviser to Tsakos Energy Navigation. This morning, the company publicly released its financial results for the fourth quarter and year ended December 31, 2022. In case you do not have a copy of today's earnings release, please call us at (212) 661-7566 or e-mail at ten@capitallink.com, and we will have a copy for you in mail 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 the presentation slides on the company's website.

Please note that the slides of the webcast presentation will be available and archived on the website of the company after the conference call. Also please note that the slides of the webcast presentation are user controlled, and that means that by clicking on the proper back and 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.

And before passing the floor to Mr. Arapoglou, I would like to -- we're looking forward to having Dr. Tsakos with us at the Capital Link Forum in New York, Monday. And I would like to congrats him for being recognized as the Person of the Year by the Hellenic-American Chamber of Commerce next Friday in New York, recognizing and honoring his contribution to global shipping to Greece. And also recognizing the fact that TEN is the longest listed Greek company on the New York Stock Exchange, and this recognition coincides with record profitability, a record year for TEN.

So with that, I will pass the floor to Mr. Arapoglou, the Chairman of Tsakos Energy Navigation. Please go ahead, Mr. Chairman.

Thank you, Nikolas. Good morning, and good afternoon to everyone, and thank you for attending our call today. Please excuse my voice, which you to cable cause, but I'll manage. Blockbuster quarter and full year, the record results in both since inception, celebrating this and a very healthy dividend increase. I need to remind everyone of the TEN model, which mitigates negative results in both markets and allow the company for benefit in strong markets.

Indeed, this model has allowed TEN to pay an interruptive dividend since inception at an average over the year payout ratio of over 22% of revenues (inaudible) will explain later.

The main driver of the stellar results about from, of course, the otherwise very unfortunate geopolitical events the market fundamentals, we were all expecting to retain for quite some time now. So congratulations (inaudible) once again, to Nikolas Tsakos and the management team, which apart from operational excellence is (inaudible) pursuing the future growth, reducing debt, and shipping (inaudible) course to benefit from what seems to be a sustained strong market despite a recessionary expectations. All this potential has been steadily recognized by the market and the reflected in stock's performance in TEN's recent months. So again, well done to all, and we look forward to the continuation of TEN's profitable journey going forward. Thank you all. And with this, over to Nikolas Tsakos. Thank you.

Thank you, Chairman, and good morning to everybody or good afternoon if you are on this side. And we would like to welcome you on our 2022 year-end call. As the Chairman said, Nick, thank you very much for reminding us that we are the oldest and the greatest year of the Greek companies on the New York Stock Exchange, but I think that's a great privilege and great honor, and we're looking to be able to celebrate with you quite soon the event. And it coincides with a very good year, a record year. But I think whenever we talk, we talk about a record year, people get a bit worried thinking that we have really reached a peak. This is something that we hope, as we can see from the fundamentals and the actual market conditions that we're facing right now, that 2023 has started as an ever stronger year than '22 has done. So by coincidence, we will be celebrating 30 years as a public company started on the Oslo Stock Exchange in 1993. So we hope, as our CEO has said that we can see the share above the $30 within our 30th anniversary.

And looking at where we are today, TEN has maintained this model of being able to grow, thrive and prepare the grounds during difficult markets because the time you want to be investing in assets is when nobody wants to invest, and we have been able to achieve this with following our model and luck, of course. And then to thrive during the good times, but TEN has never stopped paying a dividend, had never stopped reducing debt, had never had to reconstruct any of its loans. And of course, this gives a lot of confidence to our clients, and that's why we are a client of choice in good and bad times.

This is actually -- we are going through our fifth crisis, which started with the Far East in the 9/11 crisis, the credit crisis of 2008, which I hope we're not touching again. COVID hit us back in 2020 and then the invasion of Ukraine. But through all these crises, the company has been able to maintain a dividend and invest at the low points of the cycle and then be able to take advantage of the change of the market and be able to monetize part of it. That's what we have been doing.

The beginning of 2023 has been a very busy year. I think we have never seen so many sales and purchase transactions in buying and selling ships. I think we have already done 18 of those transactions in less than 3 months, of which 8 vessels were sold and 10 vessels were ordered and bought. So I think quite busy, and this prepares the company for an exciting first quarter. It seems that this first quarter is as strong as the fourth quarter to say the least, big appetite by clients to renew even vessels -- seasoned vessels, so from good stable-like ourselves.

And I will ask Paul, who would you like to give us a little bit of the numbers. And then George to give us the -- how the year went.

Yes, by all mean. So the fourth quarter of 2022 resulted in net income of over $100 million, bringing our net income for the year to over $204 million, a new record for the company since 2008. EBITDA increased to almost $160 million in the quarter, adding to our cash reserves for the year-end, and reaching a staggering amount of over $300 million by the end of the recent year, due mainly to the impact of the events in Eastern Europe through most of 2022.

And since the end of the year, our cash reserves have continued to increase, taking into account sale of vessels. Revenue in quarter 4 totaled over $270 million, a 94% increase over the prior year. Time charters generated about $460 million in the year, while total revenues in the year amounted to $860 million, of which $55 million is related to profit share.

Total operating income in the quarter amounted to $122 million compared to a loss in the prior fourth quarter. In 2022, operating income reached $256 million compared with a loss of $120 million in the prior year. With 66 vessels operating, our average daily time charter equivalent in the quarter was almost $40,000 in a market that effectively operated with full employment for our vessels at 97%. Only 2 of our vessels were in dry dock in the quarter. But in the year, 16 vessels undertook dry dock. While certain expenses had increased due in part to the new vessels that incur higher operating expenses and to various other price increases. However, our time charter revenue alone was able to cover all our expenses and still leave significant amounts of free funds.

All our new vessels and orders are financed, except to the latest orders, and all new buildings are expected to generate strong rewards over the forthcoming years. In the meantime, the company will continue, as always, to ensure perfect debt service.

Given our cash availability, use of funds will be high on management's financial priorities. And in this respect, we are already preparing plans accordingly regarding the company's future.

And those are my basic comments. Please note that we shall be filing our 20-F shortly, in which there will, of course, be substantial information included.

Thank you, Paul. Good morning to all of you joining our earnings call today. Last year, we had experienced the largest change in trade flows to ongoing crude and oil product movements due to a political action, they were in Ukraine and the sanctions that followed on Russian seaborne barrels. These changes could be permanent as Europe, the biggest client of Russian oil, managed to replace these barrels with barrels coming from the U.S., West Africa, Guyana and the Middle East creating a positive ton-mile multiplier effect for tanker demand and rates.

At the same time, tanker newbuildings are at an all-time low, 30-year low, and global oil demand is coming back after the COVID pandemic. In fact, despite the ongoing energy transition to renewables, the world understands that its reliance on oil and LNG will last longer possibly at least until 2050.

Demand is expected to grow by 2 million barrels per day in 2023 based on the latest forecast by the International Energy Agency. It will be an all-time record at 102 million barrels per day. All eyes are, of course, in China, which changed its zero COVID policy in the last quarter of 2022, as most of the growth is expected to come from them. Especially despite global headwinds, inflation, tightening global financial conditions, the war in Ukraine and that continues and geopolitical tensions, the global economy continues to grow.

Oil demand, as we said, is growing and tanker fundamentals appear to be favoring a sustainably good tanker market.

Let's go to the slides of our presentation. Starting with Slide 3, we see that since TEN's inception in 1993, we have faced 5 major crisis, and each time the company came out stronger. Thanks to its operating model. This time is no exception. We managed the COVID pandemic without any serious effects for both fleet and onshore operations, and we are currently navigating the challenges created by the war in Ukraine, and the inflationary pressures on cost.

The market fundamentals, record low order book and an aging fleet, even without this strategic work, were positive for the tanker industry. The sanctions imposed on Russia and seaborne oil as a result of the war, served as an additional catalyst to propel freight rates higher as long established trade routes were disrupted in various distance and length.

Slide 4, we see the company's fleet growth and capital market access since inception. We raised capital for growth countercyclically, not at the top of the market, but at times when the asset prices were usually low. TEN was set up in the aftermath of the OPA 90 legislation for double-hull tankers. We started with 4 modern vessels in 1993, and in 3 years, grew to 12 after raising $130 million from the founders of the company and new energy investors at the Oslo Stock Exchange.

When we listed the company in the New York Stock Exchange in 2002, the company was already transitioning towards a full double held company with a series of tailored- build, newbuilding tankers catering to the requirements of our clients. In the blue boxes, you see the company's common share offerings. And in red, the offerings of preferred shares since the company's New York Stock Exchange listing. The first 2 Series of 50 million each, the Series B and C preferreds have already been redeemed at par.

In the next slide, we see the fleet and its current fleet employment. We have an operational fleet of 58 vessels. 43 out of the 58 or 74% of the fleet in the water has market exposure, a combination of spot, contract of affreightment in time charter with profit sharing. 43 out of the 58 or 74%, again, is in secured contracts, 6 time charters and time charter with profit sharing. This means that TEN is well positioned to capture the prevailing positive tanker market fundamentals.

Our fourth quarter end '22 revenue and net income announced today is a testament of TEN's taking advantage of the good tanker market. We should note here that Maria Energy has 2016 built LNG is fixed to a minimum 12-year time charter to a leading Asian natural gas operator at the rate reflecting of current market conditions in the LNG sector. The vessel is expected to be delivered to her new charter upon completion of the existing time charter in 2026. Fleet modernity is a key element of our operating model. During 2022, we sold a 2003 built Panamax tanker and a 2006 built LR2 Aframax tanker and took delivery of 3 modern vessels. 2 new newbuildings in January of 2022, the LNG carrier Tenergy. In July, shuttle tankers Porto and in November, PS1, a 2020 build eco-friendly scrubber fleet at VLCC. All 3 vessels are chartered against long accretive time charters.

In addition, we announced today the sale of 8 tankers, 6 2005-build MRs and 2 2006-built Handysize tankers and the buyback with company cash of 2 2005-builds Suezmaxs for a price that today is well under the fair market value. While these 2 Suezmaxs is currently operate in the spot market, management is exploring divestment opportunities as asset prices continue to trend higher.

And the divestment of earlier generation vessels will be replaced with modern eco-friendly greener vessels. On the newbuilding front, we announced today the signing of 2 scrubber-fitted environmentally designed Suezmaxs for delivery at the end of 2025 from a South Korean yard. TEN is currently a newbuilding program consisting of 2 plus 1 option shuttle tankers for delivery during 2025, 4 dual fuel Aframax tankers for delivery in the second half of this year and the first quarter of next, plus 2 ecofriendly scrubber fitted Suezmax that we announced today. Except for these 2 Suezmaxs, at least for now, that have not chartered attached but there is interest. The rest of the company's newbuildings have been fixed forward against medium- to long-term time charters.

In Slide 6, we present the company's current and long-term clients. As you see, we have a blue chip customer base consisting of all major global energy companies, refineries, commodity traders with Equinor currently topping the list as our largest charterer with 9 vessels and 4 newbuilding, all on long-time charterers.

In Slide 7, the left side presents the all-in breakeven cost for the various vessel types we operate in TEN. We maintain a low cost base. We have a simple operating model. We try to have our time charter vessels generate revenue to cover the company's cash expenses, paying for the vessel operating expenses, finance expenses, overheads, chartering costs and commissions and let revenue from the spot trading vessels opportunistically contribute to the profitability of the company.

Despite the prevailing inflationary pressures, we want to highlight the purchasing power of our technical manager and the continuous cost control efforts by management to maintain a low OpEx average for the fleet while keeping a high fleet utilization rate quarter after quarter, year after year. Despite 16 special surveys and ahead of schedule in preparation for the anticipated market upturn, we achieved an overall utilization of almost 95% for the fleet. And thanks to the profit-sharing element for every $1,000 increase in the spot rates, we have a positive $0.19 impact in annual EPS based on the number of TEN vessels that currently have exposure to spot rates.

Debt reduction is an integral part of the company's capital allocation strategy. The company's debt picked in December of 2016. Since then, we have repaid $360 million of debt and repurchased $100 million in 2 series of step-up preferred shares that we had outstanding.

In addition to paying down debt, dividend continuity is important for common shareholders and management. TEN has always paid the dividend irrespective of the market cyclicality. The company announced today an annual dividend of $0.60 for 2023. $0.30 will be paid in June, and the other $0.30 will be paid in December. This compares with $0.25 per common share paid last year, an 140% increase. Following the dividend announced today, the company will have paid in excess of $516 million in dividends since the initial listing in 2002.

Global oil demand continues to recover as the world emerges from the COVID pandemic. China recently changed the strict zero COVID policy. This policy change should have a very positive impact on Chinese and global oil demand in 2023.

Despite financial and geopolitical headwinds, the International Energy Agency expects global oil demand to grow by approximately 2 million barrels in 2023. Most of the growth is coming from the Asia Pacific region, fueled by research in China. On the supply side, most of the growth in 2023 is expected from non-OPEC+ countries like Brazil, the U.S., Guyana, Canada, Mexico and Norway.

As global oil demand continues to grow, let's look at the forecast for supply of tankers in Slide 11. The order book stands at a little over 4% over the next 3 years, the lowest it has been in more than [30%]. At the same time, a big part of the fleet is over 15 years, and almost 10% of the fleet is currently over 20 years.

All those scrapping activity has come down, which is natural last year. We have upcoming regulations and industry with decarbonization initiatives and almost 10% of the fleet being over 20. We think that all these factors point to a balanced tanker supply markets for the years ahead.

And with that, I will return the call back to Nikolas for the Q&A. Thank you.

Thank you, George, for giving us a full picture of quite an exciting year. And a lot of excitement, as I say, has begun with 2023, where market fundamentals are remaining strong. The recent weakness in the price of oil, it is, I think, a welcome and positive for the tanker industry. And I've been saying this for as long as Mr. Bornozis said, we've been up on the New York Stock Exchange and more stock exchanges. That there is always a correlation -- reverse correlation with tanker rates and the price of oil. So I think what we are seeing in the recent weeks, the normalization of the price of the -- in the price of oil, we are in a low inventory environment.

The world has suffered from a high -- from high oil prices in the last at least 4 quarters. So we will -- we see that the correction and the price of oil becoming to more affordable levels for the world is going to drive more business for ourselves. And we see this in the demand from every single or major for long-term businesses that I have -- I don't think we've ever seen again. I mean, as you know, we do more of our business on profit sharing arrangements. But today, VLCC could easily go for a year, close to $70,000, as Suezmax about $50,000 to $60,000. And very similar the Aframax rates, and these are also for a couple of years. So there is positive -- there is a positive environment for where we're going forward. And that's why we took the opportunity to order vessels of new generation that will be able to fulfill the requirement of the major oil companies.

I think right now, we are having a balanced profit sharing and spot environment. Our LNGs -- one of our LNGs is opening in the next couple of months. And this is going to be earning a significant. I think we will add at least another by itself and close to $1 a year of net income by a new charter. So that's a very positive situation going forward. And we will be welcoming our new vessels as of October of 2023, the first of our dual fuel vessels. We took the opportunity to sell our older product tankers at prices that we did not expect to ever see again, not far from their original purchase value some time ago. So we are renewing that part of the business going forward.

Looking back and in view of our presentation next week, we have seen that TEN through the years has included this year has made the net income over the last 20 years on the stock exchange of USD 2.3 billion in a very cyclical market, and has paid dividends of -- in excess of $0.5 billion as our CEO said. And we are looking at this trend and we hope that this trend to continue at least for the foreseeable future for us. And of course, the other energy companies out there.

And with this, I would like to thank all of you for your support over the last 20 years. It has been an enjoyable ride, and looking forward for a few more years of excitement, and we're glad to open the floor for any questions.

(Operator Instructions) Our first question is from Climent Molins with Value Investor's.

I wanted to start by asking about the dividend you announced today. How should we think about it? Because on the capital increment in January, you mentioned that [TMP] really intensely distribute between 25% and 50% of net income during the good times. Is that still the Board's intention?

Yes. I mean this has always been -- good morning, thanks for your question. If you look at the historical figures, I announced out of $2.3 billion of net income, we have already distributed -- to be accurate $570 million. So that's about close to -- between 20%, 25% and 30%. And yes, we will maintain the same policy and always build up cash. I believe that we -- if things continue, we will be close to $0.5 billion of liquidity within this year, which I think will give us well, a lot of security going forward and a lot of ammunition to invest in new and more environmentally friendly vessels.

During the quarter, you issued 570,000 shares for $10.4 million. Could you provide some insight on the reason behind that decision? And looking ahead, should we expect additional ATM usage?

That was a program that we had to complete within the year. That was a decision taken in the early part of 2022. And it was completed with the liquidity that the company is building up on a daily basis, I don't foresee any similar transactions now that this program has been completed.

That's helpful. And final question for me. You mentioned the new contract on the Neo Energy will add at least another $1 in net income by itself. Could you provide some additional commentary on the terms of the new contract, for example, the TCE or the contract duration?

Well, we are looking at a year early contracts in excess of $100,000 a day, that's about $36 million. Or if we decided to do a 2-year contract about $85,000 a day. So that's how we come to the figure I mentioned to you.

Makes sense. So it's not fixed yet, right?

Exactly.

(Operator Instructions) There are no further questions at this time. I'd like to hand the floor back over to Dr. Nikolas Tsakos for any closing comments.

Well, first of all, thank you for supporting the company over this year. We are actually looking at this and I know whenever someone talks about a very strong quarter, you have -- people thinking that the market has peaked. The solid fundamentals that I think our COO presented, and I think you are all familiar with the market. So that we are in the tankers -- in a situation because of the lack of knowledge of what actual compassion engines are, our vessels should be designed or built with the lowest replacement program or newbuilding program since I've been in business since 30 years. I think the whole industry -- the whole tanker industry is close to 4%. And I think segments, the big segment is closer to 2.8% to 3%. This is unpresented.

And without any growth in trades, that would signal a very strong market going forward because, as you know, it takes at least 3 years to build the ship, if someone decides to do so. So we are in for a healthy period going forward without the need of any geopolitical circumstances that create the requirement for more ton miles. So whereas we are always preparing to a company to be able to absorb any shocks that might arrive. And we have proven that we're very proud of that record.

I think we will be able to harvest everything that we have planned. And with the coming of the 8 new ships, plus 2 vessels that have been added in our fleet in the recent couple of weeks to grow the earnings of -- in the first quarter and going forward.

And we are the major shareholders in the company, and we feel very correct, we're right to be able to reward our shareholders with a very dramatic and significant increase of our dividend. And if the market continues, hopefully, we can have another increase in -- later in the year.

And with that, I will ask Mr. Arapoglou to wrap up.

Thank you, Nikolas. The message is that it is not a flash in the pan. it the market continues as strong as it used to be at the end of last year, and TEN is ideally positioned to capture all the benefits going forward.

So with that, thank you all for attending today's meeting and all the best. Thank you.

Thank you. See you next week in New York. Thank you very much. Thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.