Tsakos Energy Navigation Ltd (TNP) 2013 Q3 法說會逐字稿

Thank you for standing by, ladies and gentlemen, and welcome to the Tsakos Energy Navigation conference call on the third-quarter 2013 financial results. We have with us Mr. John Stavropoulis, Chairman;, Mr. Nikolas 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. (Operator Instructions). I must advise you this conference is being recorded today Friday, November 22, 2013.

And I now pass the floor to Mr. Nicolaus 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 Nicholas Bornozis of Capital Link, Investor Relations Advisor to Tsakos Energy Navigation.

The Company released its financial results for the third-quarter and the nine-month period of 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@capitalink.com and we will email a copy to you right away.

Prior 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 on the Company's website 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 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 the call over to Mr. John Stavropoulos, the Chairman of Tsakos Energy Navigation. Mr. Stavropoulos, please go ahead, sir.

Nicolaus, thank you very much. Nick Tsakos and his team have navigated TEN through very stormy seas for four very long years. I now share their view that it is a good time to explore fleet renewal via accretive opportunity. The addition of very long-term charters for the two shuttle tankers have provided significant cash flow visibility, which will assist in these new initiatives.

The market for crude carriers is hinting at a less dim light at the end of the tunnel. Very importantly, the prospects for the Asian economies have improved and the overall outlook suggests that 2014 will bring big smiles. Keep up the good work, Nick.

I would like to add a special prayer next Thursday, Happy Thanksgiving for all. Thank you.

Thank you, Chairman, and welcome all to our third-quarter results. We are glad to announce a much better environment and much better results than the last two years (inaudible). For those of you who have been our shareholders for a long time you remember that our Company, who has been public for 20 years has had 17 consecutive years of profitability and then including this year, which hopefully we will breakeven two years of losses. We are very happy to see that the losses are now diminishing and we are getting very close to breakeven.

The general environment both for products, LNG, gas carriers, also for the crude sector which is a significant part of our business seems to be much more positive than in 2011 and 2012. So we hope that we will be back to profitability soon. In the meantime, we are taking all of the actions to renew our [credibility], our fleet, and at the same time move into new energy-related businesses that command much better returns.

And with this in mind, I would ask George Saroglou to give us the details of the last nine months and then basically this quarter and then our CFO, Mr. Paul Durham, will take us through the numbers and we will all be very glad to answer any questions that you may have. Thank you very much.

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. For those of you who are connected to the Internet and our website, there is an online slide presentation and we are going to follow the format of this presentation during the call.

Let's turn to slide number three where we see the current fleet which consists of 28 product tankers all of them in the water producing for TEN. This is one of the largest products fleets in the water operating today in a product time care market environment that continues to improve. The Company has also 19 crude carriers where we have seen rate improvements from the second quarter of 2013 and this has continued to give a seasonally strong fourth-quarter where we all have seen rates for VLCCs currently at over $55,000 per day. The Company has also two LNG vessels including one in the water and one on order.

The next slide gives us some market highlights. The global economy continues to show signs of recovery still on a modest scale, which when coupled with higher than anticipated power sector used in some regions raise the overall global oil demand forecast to roughly 91 million barrels per day for 2013, that's 1 million barrels per day more than the previous year, or 1.1% growth.

This strength of growth is forecasted to continue in 2014 with demand expected at 92.1 million barrels per day or 1.2% growth over the 2013 demand numbers.

On the supply, the order book especially for crude tankers is low by historical average annual newbuilding order numbers. Most of the orders this year have been on product tankers, (inaudible). The tanker order book is now a little over 10% of the existing fleet down from almost 40% and a bit higher back in 2008. This will result in modest global fleet growth in 2014.

Looking at the corporate highlights in the next slide, you are going to see that TEN successfully completed the project for the DP2 shuttle tankers by ordering, building, and taking delivery on time of two very high specification vessels that passed all (inaudible) trials and approvals and begun in May and June of 2013 the 15-year time charter to Petrobras. The third quarter was the first quarter of full operation for both vessels, which impacted very positively the overall financial results.

The Company's pro forma fleet of 49 vessels includes 48 vessels in operation and one dry fuel LNG vessel under construction. The Company managed to change the size of the vessel from 162 to 174 and moved the delivery schedule from the third quarter of 2015 to the first quarter of 2016. The Company also held an auction for one LNG vessel, sister vessel to the (inaudible) to be declared during the first quarter of 2014.

The fleet is 100% double-hull, very modern, 6.8 years the average age, 21 tankers have ice-class and 32 vessels out of the 49 vessel pro forma fleet have term employment that range from 1 to 15 years. One of our 1A ice-class vessels, the LR2 Propontis, performed the northern route sea passage during the summer months taking a cargo of naphtha from Northern Europe to Japan and a gas load cargo back to Europe on its return leg.

Thanks to our time chartered (technical difficulty), we continue to operate the fleet at a very high utilization rate, 91.8% for the nine months of 2013 when the average for the tanker (inaudible) industry is around 85%.

The following slide gives us the main highlights of the press release, 135% increase in operating income for the nine months, a significant improvement in both the third quarter 2013 and nine months of 2013 net results. We have maintained strong balances and cash reserves and we raised $100 million in two preferred offerings in May and the end of September 2013 which strengthens and enhance the Company's growth prospects. We have made new charters for 11 vessels since January 1, 2013 with minimum revenues of approximately $135 million and we celebrated 20 years in the capital markets.

The next slide shows the corporate fleet as it stands right now. The main focus is 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, favorable supply/demand fundamentals, and barriers to entry. trends. 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 right now which is taking advantage of an environment that keeps on getting better. We have 21 ice class tankers to take advantage of ice class premium when they trade during the winter months. We have the first two Greek flag shuttle tankers which are on 15-year time charters with Petrobras and one LNG in the water and one tri-fuel LNG under construction plus one option. Since 1997 the fleet was built exclusively with newbuilding orders in Korea and Japan.

The next slide, slide number eight, shows the clients of TEN with whom the Company is doing repeat business over the year thanks to the quality of service, fleet modernity, and safety record of the enterprise fleet. In the same table beside the names we also list the top seven clients of TEN and their share of revenue of the Company during 2012.

Slide nine is the employment slide. We continue to have a balanced employment strategy having a mix of spot charters, COAs, and pooling arrangements and [better] charters with fixed rates and minimum rates with profit-sharing arrangements.

Looking at the product fleet out of 21 vessels, 21 operate in time charters with fixed and profit-sharing arrangements and seven vessels played in the spot market. Out of the 21 vessels with fixed employment, five have profit-sharing arrangements. If one adds the seven spot-related vessels, you have 12 product tankers that already taken advantage of an improving product tanker freight rate environment.

Of the 19 crude tankers that we have, 10 have fixed employment and nine vessels trade in the spot market mainly the seven Princess Series Aframaxes and two Suezmax tankers. Out of the 19 crude tankers, four operate in fixed time charters and 15 in a combination of profit-sharing -- profit-sharing time charters, market related COAs, spot voyages and pool arrangements. The slightest improvement in the spot market for Aframax tankers will link back positively the bottom line. And we are beginning to see improvements in the crude markets which we hope will be sustained.

Looking at dollar value on the above, in the next slide, slide 10, as of today we have fixed 73% of the remaining available 2013 fleet operating days, 60% of the available 2014 fleet operating days, and 38% of the 2015 fleet operating days. Assuming only the minimum rates, TEN has secured 1029 months of forward employment or 2.7 years per vessel and $925 million in minimum gross revenues.

The next slide has a track record and a sale and purchase activity since 2003 and as you can see, its sale and purchase is and has been an integral part of our operation as the record shows and fleet modernity is a key element of the corporate strategy. That is why TEN through the years has managed to maintain a very modern fleet.

Since the New York Stock Exchange listing, we have generated capital gains of approximately $280 million and the Company reinvested these capital gains in renewal of the fleet by ordering the majority of its newbuilding tankers before newbuilding prices started to rise.

Slide number 12 is the slide with the dividend distributions. The next dividend of $0.05 per share on the common shares will be paid on December 17. In total since 2002 we have paid $9.73 in cash dividends or approximately $383 million and this compares with a listing price in our IPO of $7.50 adjusted for the November 2007 2 for 1 split.

We also have two series of preferred shares outstanding. On the Series B issued in May of 2013, we announced and paid two dividends, one on July 30 of $0.44444 per share and $0.50 per preferred share on October 30. On the Series C, which were issued on September 30, 2013, the first dividend is payable on January 30, 2014.

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

Thank you, George. As we mentioned, TEN achieved a significant improvement in its quarter three results with a net loss of just $1.4 million compared to the prior quarter three loss of $10.4 million. The loss per share was $0.04, that's negative. Excluding the impact of preferred dividends, which do not impact results but are included in calculating earnings per share, the loss per share would have been just $0.02.

For the nine months, a loss of only $1.9 million was incurred versus a $24.9 million loss in the first nine months of 2012. Operating income for quarter three was $9.7 million against only $800,000 in quarter three 2012.

For the nine months, we achieved $28 million operating income compared to $11.9 million in the first nine months of 2012 mainly due to increases in revenue. Quarter three revenue, after commission and wage expenses, at nearly $74 million was 15% higher than in the previous quarter three, while for the nine months, $215 million was achieved versus $202 million in the first five months of 2012.

Our two new shuttle tankers earned a full quarterly income potential for the first time in quarter three with $8.3 million in net revenue while the LNG carrier provided another $7.2 million.

Although our Aframaxes were mainly on spot in a very poor market, average rates achieved by our Aframaxes actually improved 9% over last year's quarter three daily rates for Aframaxes.

Our Suezmaxes earned less than average than in quarter three 2012 but considerably better than market rate. The product carriers, several employed with market related rates, achieved on average 6% higher rates than in quarter three 2012. Despite 8% cheaper fuel and the quarter four 2012 sale of two VLCCs, voyage expenses were 19% higher in quarter three than in the prior quarter three due to three extra vessels we operated in the spot market.

For the nine months all the vessels had positive EBITDA, which totaled $103 million compared to $88 million in the first nine months of 2012. The third quarter generated $35 million EBITDA compared to $26 million in last year's quarter three.

Operating expenses were $32.8 million compared to $33.1 million in quarter three 2012, a 1% reduction. Similarly, average daily OpEx per vessel fell from the previous quarter three by $180 to $7483 per day. A 6% weakening of the dollar against the euro put pressure on crew expenses, but expenditure on repairs, stores, and fares fell due to there being only one dry docking in quarter three compared to three in quarter three 2012.

Finance costs were $10.9 million versus $11.3 million in the prior quarter three. Interest actually fell by $3 million mainly due to expiry of swaps but valuation movements on non-hedging swaps were neutral while positive in quarter three 2012.

In quarter three we repaid $52 million of debt including an expiring loan, the last vessel of which was refinanced with debt of [$80] million at very good terms. At September 30, total outstanding loans were $1.4 billion and net debt to capital, 55%. Finally, we raised a further $50 million gross from a second preferred stock offering again with a positive effect on liquidity and leverage.

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

Paul, thank you very much. With your presentation on the figures, we would like to open the floor to anybody who would want to ask any questions. Thank you.

Thank you very much indeed, sir. And we will now begin the question-and-answer session. (Operator Instructions). Gregory Lewis, Credit Suisse.

Nick, could you talk a little bit about the performance of the shuttle tankers in Brazil. It sounds like they are earning good rate. Can you talk a little bit about how much they are being utilized by Petrobras? And to that point, if you are seeing or having conversations at this point with Petrobras about potentially going back to the yards and maybe thinking about adding one or two newbuild shuttle tankers?

Yes. I would like to roll this in private. We don't want our competition to be listening in, but anyway. Joking apart, yes, we started this phase two years ago. As you know, Petrobras is one of our largest clients. That's why we were all very happy that Greece qualified for the World Cup in Brazil, so at least we can go and see our clients there.

Petrobras is our largest client. They are increasing their demand for dynamic position shuttle tankers. We are looking as we speak now at another opportunity that actually holds an existing vessel with some small modification for another 10-year charter, so the business is increasing there. We have had the experience with them for almost 30 years, so it is really business as usual for someone who has the infrastructure, the (inaudible) the manpower to do it there. Many people go to Brazil being new and they tend to come out of Brazil bruised. But knocking on wood for us, it is something we are going to be expanding and we might be announcing in the next six months more Brazilian related business.

Okay, great. When I look at slide 16 that you provided for us where we see that the order book as a percentage of the crude fleet is coming down, and then I try to match that up with your fleet, it looks like you took delivery of your last newbuilding in 2011. When we think about ordering vessels today in late 2013 and taking delivery of them in maybe 2015 or 2016, at a certain point does it make sense for TEN to come back -- to go back to the yards and maybe order some additional more conventional tankers? Or should we be thinking more along the lines that the focus is going to be more on higher spec vessels such as shuttle tankers, LNG, or is the answer potentially both?

I think you are right, that we will be looking -- the time has come, as our Chairman mentioned, to look at renewing our already new fleet and our aim is to, of course our bread and butter comes from the conventional ships. We never said we would exit conventional tanker transportation. So, yes, we are I would say strongly looking at renewing the fleet in accretive ways.

Okay, great. And then one last question from me on the broader markets. We have seen some nice strength in VLCCs recently, I think that really caught everyone by surprise. I realize you only have one VLCC at this point and it was recently fixed on a long-term contract. But could you talk a little bit about what drove that tightness in the market? And really when people talk about the market being oversupplied, is it really as oversupplied as the overall market thinks? And the only reason I ask that is just given the volatile move up we saw in VLCC rates more recently.

I agree with you, the market as seen from our slide on page 16 is getting more balanced. I think what really helps, and I hope most of the owners who are in this segment and in every segment will continue to do because it is a matter of survival, has to do with slow spinning.

If the owners can keep control of what is good for us as owners long-term, we will avoid bringing the order book back to its record levels and at the same time, we will avoid making the vessels have a higher speed.

It is intriguing sometimes when you say okay if I can do 14 knots or 15 knots I can get twice $60,000 in the same bid at one and a half thousand times I can do more. But the problem is that you will not be the only one thinking about it if all of the competition thinks the same, the 60,000 will go back to 6000 very soon.

So I think it needs control in this fragmented industry and I think the results, first of all, we see that China increasing its imports has resulted to this and we hope it will last.

Okay, perfect. Thank you very much for the time, gentlemen.

Ben Nolan, Stifel.

I actually have a couple of questions. First of all just for sort of record-keeping purposes, I know that you guys had the at the money equity offering that you announced in the quarter. I was just curious to see where that stands in terms of how many shares have been issued and maybe what the current share count is as of today?

For the quarter that ended September 30, the sales have been small sales around 280,000 shares.

Okay. And has there been any subsequent to the end of the quarter?

Yes, there has been periodically from time to time we revisit the market and --(multiple speakers). We are today at about a little over 900,000 shares.

Okay, perfect. That's very helpful. And then my second question sort of goes to along the lines of what Greg was asking. When you think about maybe if you could high grade where you think the best opportunities are with respect to your capital spending, replacing the conventional fleet be it crude or product. Is there a preference in that? How does that rank relative to say the offshore side and maybe exercising the option on the LNG vessel, or is it just a matter of doing all of them, or looking to do all of them, or is crude sort of the best, or is offshore the best? I don't know, just how you are thinking about where the best opportunities lie.

Thank you. As I think we tried to put the Company, we are a client-driven Company, so of course when the universe aligns and then you can have a client who is also looking to expand his participation in the business, which makes a lot of sense, then I think that makes it even better. So we are always looking at businesses with attached employment and with profit sharings with our clients.

So I would say the most depressed market today is the crude market and it is natural for us to be looking more in the crude market. However, we have clients who are actually in discussions with us to increase our products, and we have avoided entering the market by ordering product carriers without employment. But you will be seeing us I think ordering additional products with accretive employment. The same goes with crude and of course LNG, the figures are different but we are taking conservative steps and we will be increasing our participation in the gas also.

So I would say we are keeping all the balls in the air. Whatever the reason, accretive transaction, it is a transaction that will do. You will not see TEN as it stands today ordering 10 VLCC newbuildings out of speculation because this is not the [karma] and the structure of the Company. But if we have employment for 10 VLCC newbuildings, we will very seriously we will consider doing it.

So I don't know if this answers, but as I said, we are client driven. We like to continue our dividend payment and our growth in accretive transactions.

That's extremely helpful, actually. And then my last question relates to something that I don't think that you mentioned, but for several quarters now, you have been talking about the prospects of taking a segment of the fleet and spinning it into or dropping it down in the form of an MLP. Could you maybe give an update as to where that stands. Is that still something that you are considering pursuing, or just maybe any update that you might have on that?

Yes. This is very much into where we want to go from here. What we need actually is the bridge because we have our existing fleet and then we have our LNGs. Future expansion would actually start in 2016 and move forward. As you know, the use of proceeds in an MLP we need to bridge something between 2014 and 2016. When the project that will be the bridge appears, and it's a project with a long at least five-year employment and more, that would be the time to have the existing fleet, the immediate bridge, and the future growth. So we are always looking at it and when the product is there, it will be a very accretive transaction for the parent and the new shareholders.

Okay, perfect. That's extremely helpful in all accounts, I really appreciate it, thanks.

Fotis Giannakoulis, Morgan Stanley.

I want to ask also about the shipping cycle. Obviously you expressed your preference on the shuttle tanker market and the opportunities there. But if you had to choose between the product tanker market and the crude tanker market, at which point of the cycle are we and where are there going to be more opportunities?

And you also pointed out the decline of the order book. We have seen that this decline is not balanced across different sectors. We have the Aframax fleet that is shrinking, we have the other larger vessels that we are still growing. Which asset classes do you think they are better?

As we have mentioned, we are a client-driven company. We need to renew our already modern fleet, but we have stayed on the sidelines when people are making for good or for bad headlines and ordering fleets and dozens of ships here and there that unfortunately will bring our market down in the next couple of years. So we are using also people like yourselves and your teams, your statistics, we can see that the crude is the most imbalanced sector.

I know that unfortunately very soon a lot of investors might jump and turn it around, but it is natural for us to look in the crude sector. You know that the Aframaxes have been one of our core businesses and looking at the Aframax, it is the workhorse. It is the equivalent of what the Panamax or the (inaudible) is for the dry cargo side. We will be looking at these segments also.

I understand that you are afraid a little bit of the market a couple of years from now. Given the capital levers and the sector except of traditional shipping companies, do you think that the shipping cycles moving forward they are going to be shorter where people will be ordering immediately ships when they see their supply coming? And at what point do you think we should stop worrying again about the order books?

I think, as I said, we are a fragmented industry and we cannot put everybody's mind in line and this is not -- we are in a democratic supply and demand environment and I think the product market has been perhaps oversold as a future investment and that was mainly in 2012 and in the beginning of 2013.

The crude market is staying right now on the sidelines and we hope it will maintain staying in the sidelines. This gives us at least another three years of a positive market starting from 2014, 2015, and 2016. If it will start building significantly I believe after 2017, we might again look at a negative balance.

I want to move to the product tanker market a little bit especially the LR vessel that we have seen them for quite a while underperforming the smaller MR sizes. Do you think that there is any dynamics there especially if crude tanker vessels or Aframaxes will start getting better?

I think the LR both 1 and 2s are segments of the market for the last few quarters to say have been completely outshone by their smaller relatives, the 37,000 the 40,000 and the 53,000 tonners, and I have a feeling from what we hear from the oil companies that they are becoming more in demand as the refining capacity mainly in India comes more online.

Okay. Thank you very much for your answers.

(Operator Instructions). Gentleman, there appear to be no further questions at this time. I shall pass the floor back to you for closing remarks.

Thank you very much for your attention. We believe that by the time of the next quarter announcements we will be in a better position. I understand that Paul feels satisfied with us reducing our margin to zero losses, but our aim is to immediately come back to profitability and we are taking the actions to do so.

In the meantime because of the healthy balance sheet of our Company, that as our Chairman said, navigated almost five years now of a down cycle, we are looking at the future of also growing the Company with accretive transactions and we look to be in a position to talk to you about future growth very soon that will, I think, help all our shareholders, our share price, and the balances.

And I will take this opportunity to wish everybody a very happy Thanksgiving and talk to you shortly. Thank you very much.

Many thanks and to all of our speakers today, that does conclude our conference. Thank you for participating. You may now all disconnect. Thank you, gentlemen.