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Operator
Thank you for standing by, ladies and gentlemen. Welcome to SACO's Energy Navigation Conference call on the second quarter 2022 financial results. We have with us today Mr. Takis Arapilogou, Chairman of the Board, Mr. Nicholas SACO's President and CEO, Mr. Paul Durham, Chief Financial Officer, and Mr. George Saraglou, Chief Operating Officer of the company. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session, at which time, if you wish to ask a question, please press star 1 on your telephone keypad and wait for your name to be announced. I must advise you that this conference is being recorded today. I will now pass the floor over to Mr. Berrozes, president of Capital Link. Investor Relations Advisor for Tacos Energy Navigation. Please go ahead, sir.
Takis Arapilogou
Thank you very much. I'm Nicolas Bornellos of Capitalink, Investor Relations Advisor to Tacos Energy Navigation. This morning, the company publicly released its financial results for the second quarter of 2022. In case we do not have a copy of today's earnings release, please call us at 212-663. 617-566, or email us at 10 at CapitalLink.com, and we will have a copy for you right away. We will send a copy to you by email. 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.cenn.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 button, you can go to the next or to the previous slide on your own. At this time, I would like to read the safe harbor statement. This conference call and slide presentation of the webcast contains certain forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties which may affect business prospects and results of operations. is celebrating this year its 20th anniversary for its listing on the New York Stock Exchange. During this 20-year period, the company has the enviable track record of uninterrupted dividend payments regardless of market cycles. Including the current dividend, Penn has distributed half a billion dollars in dividends to its shareholders. At this moment, I would like to pass the floor on to Mr. Takis Arapoglou, the chairman of the board of Xakos Energy Navigation. Please go ahead, Mr. Arapoglou.
Nicolas Bornellos
Thank you, Nicholas. Good morning and good afternoon to all. Thank you for joining us today for our second quarter Once again, our results and the revolution throughout the first half of the year justifies our business model. In bad markets, it offers us stability and downside protection and allows us to perform far better than all of our peers, to continue to pay dividends and all our obligations uninterruptedly, to continue all the previous mentioned actions to a higher degree, and paying substantially higher dividends, rewarding our shareholders in line with our increased profitability. This is the model. This is how it works.
Nicholas
Chairman, thank you very much. First of all, we would like to offer our deep condolences for all our UK and British investors and friends and colleagues. brokers, charters around the world for losing Queen Elizabeth II. And we hope that her memory, and I'm sure to all of us, we never had any other queen that we knew of, but long live the king. So please accept all of our condolences to all our British and Commonwealth friends. And thank you, Chairman, for your good words. Our predictions in the last couple of quarters have been that the market, only because of exiting the pandemic and returning to normality, and with a very low and further shrinking order book of ships, was going to turn. The unexpected events, at least for us, of March and February 2022, have actually... The geopolitical events that have dislocated the energy routes have given us many, many more ton-miles, perhaps more ton-miles than the current tanker fleet can actually cope. And that's why we are seeing the rates since the first quarter, second quarter, and I would say the third and the fourth quarter seems that the best, according to as we were expecting, but we expect the second half to be even stronger as we're going forward. And with this, right now, I will ask George to give us an update of where we have been and what the company has been doing, and then Paul will take us through the numbers. Thank you. Thank you, Nikos. Good morning to all of you joining our earnings call today. Let's go to the slides of our presentation, and let's start with slide number three, where we see that since inception in 1993, we have faced five major crises. In each time, the company has come out stronger thanks to its counter-cyclical operating model. This time is no exception. When we started the year, it appeared that we were finally near the end of the COVID pandemic, and we expected the post-COVID oil demand recovery to materialize gradually through the year. But since the end of February, we are facing another crisis, a war in Europe with tragic loss of human life. The war created new challenges for the world and our industry. voluntary self-import, but also many rounds of strict Western sanctions against Russia, which is a major commodity exporter, changed pre-war trading routes for commodities including oil, oil products and natural gas. Europe started replacing its short-haul Russian crude oil imports with longer-haul barrels from the United States, Brazil, West Africa and the Middle East, significantly increasing tonne miles for European crude oil imports. Europe's sanctioned plan is to stop importing any Russian crude oil from December. Substituting these Russian barrels, we have an even higher multiplying effect on tonne mile growth, which should keep the good freight market going stronger for longer. At the same time, Russia is trying to find alternative customers for its crude oil output, most likely in Asia, China and India in particular. India recently reported the Russian barrels in their import mix increased from 2 percent before the war to 12 percent currently. And European oil product imports, like, for example, diesel, where Russia was also a main exporter, will stop going to Europe from February of next year and will also have to be replaced with imports from the U.S. Gulf, India, the Middle East, or from other locations, adding more to ton-mile growths and freight prospects for product tankers. We are already benefiting from this trend with our product fleet. With a long order book and the redesign of the global energy map for both food and oil product trades, we expect the tanker industry to go through a sustained strong market. Next slide, slide four, we see the fleet and its current employment profile. 40 out of 7 vessels in the pro forma fleet, or 55-57% of the fleet, has market exposure, a combination of spot, contract of affrightments, and time charters with profit sharing. While 45 out of the 70 vessels in the fleet, or 64%, is in secure contracts, fixed time charters, time charters with profit sharing, and contract of affrightments. This means that TEN is well positioned to capture the prevailing positive Fleet modernity is a key element of our operating model. In August, we sold the 2003-built Panamax tanker. Asset prices are going higher. There is renewed interest for tankers irrespective of age for some buyers. Management is actively exploring opportunities to divest some of its earlier generation vessels and replace them with more modern, eco-friendly, greener vessels. We still have four remaining new buildings, which we expect to take delivery from the fourth quarter of next year, which are part of our green-chip dual-fuel LNG-Afframax order. Plus, we have a 2020-built, scrubber-fitted South Korean-built VLCC that we expect to take delivery in November. All four new building vessels are coming with long-term employment opportunities. In the next slide, we present the break-even cost for the various vessel types we operate. We maintain a low-cost base. During the year, the revenue generated from time charter contracts was again sufficient to cover the company's cost expenses, paying for the vessel OPEX, finance expenses, overhead, chartering costs, and commissions. We must also highlight the purchasing power of TCM and the continuous cost control efforts by management to maintain the low OPEX for the fleet while keeping a high fleet utilization year after year, quarter after quarter. Despite nine special surveys during the first half of the year, four of which were ahead of schedule in preparation of an anticipated market upturn, we achieved an overall utilization in excess of 93% for the coal fleet. And thanks to the profit-sharing element, a cornerstone of TEN's charging strategy, for every $1,000 increase in spot rates, we have a positive 28-cent impact in annual earnings per share based on the number of vessels that currently have exposure in spot rates. Debt reduction, in slide 6, is also important for the companies in the company's capital allocation strategy. The company's debt peaked in December of 2017, and since then we have repaid 450 million of debt and repurchased 100 million in two series of step-up preferred shares. In addition to paying down debt, dividend continuity, as slide 7 indicates, is also important for common shareholders and management. Ten has always paid the dividend, irrespective of the market cyclicality. Today we announced a dividend of 15 cents per common shares to be paid in December. It represents a 50% increase from our July 10 cents a share dividend. The company has paid half a billion in dividends since the New York Stock Exchange listing in 2002, or about 25 million per year. Global oil demand continues to recover despite lockdowns in China as a result of their strict COVID-0 policy and negative global economic sentiment due to the war in Ukraine and higher than expected inflation worldwide. Despite this headwinds, global oil demand in the second half is expected to break the pre-pandemic level. Large-scale switching from natural gas to oil for power generation in Europe and the Middle East as a result of record natural gas and electricity prices is providing support. For the year, oil demand is expected to grow by 2 million barrels. Next year, we expect growth to be another 2.1 million barrels. Developed economies lead the oil demand expansion this year. But next year, most of the oil growth, most of the demand growth is going to come from the non-OECD countries. On the supply, OPEC Plus producers have restored all the pandemic production cuts in the August meeting. Global oil stocks continue to fall and are now almost 275 million barrels below the five-year average. Non-OPEC production is set to rise this year and next. As global oil demand continues to rebound and grow, let's look at the forecast for the supply of tankers in slide 9. The order book stands at a little over 4 percent, or 234 tankers over the next three years, which is the lowest that we have seen in at least the last 30 years. At the same time, a big part of the fleet, almost 1,800 vessels, or 33%, is over 15 years. 9% of the fleet, or almost 500 tankers, are currently over 20 years. And as the next slide shows, 2018 was one of the highest scrubbing years of record, with 21 million deadweight tons removed. Last year we've seen acceleration of scrapping from the second half, and we ended with 14.5 million deadweight ton removed. So far, until August, we had 65 vessels removed, totaling 5.2 million deadweight ton. Scrap prices continue to be at high levels, currently hovering around 600 per light ton, and with more environmental regulations coming, With discussions for alternative propulsion fuels and 9% of the global fleet above 20 years, we expect scrapping activity to remain elevated and act as a balancing factor for the fleet supply growing forward. To summarize, oil demands were reaching and passing the pre-pandemic level during the second half of this year. Oil supply. OPEC Plus has restored all pandemic production cuts. Non-OPEC production is set to increase, bringing more cargo to the market at a time when global oil stocks are below the five-year levels and demand is growing above pre-COVID levels. The war in Ukraine is redrawing the global energy map, adding to significant return mile growth for both crude and product targets. order book supply of tankers. The order book to current fleet ratio is at historical low levels, and a big part of the fleet is reaching phase-out age, pointing to a tighter supply for the next 18 to 24 months. And if you look at 10, we have a modern fleet. We already started the transition towards the next generation of green vessels. We have in the waters an operating fleet that is well-positioned to capture the strong freight market. We continue to reduce debt. We have a strong balance sheet and strong banking relationships that will allow the company to take advantage of any opportunities that will be presented to us. And with that, I will ask Paul to walk us through the financial highlights of the second quarter and the first half. Paul?
Elizabeth II
Thank you, George. In quarter two, Ted earned the net income of just of almost $217 million, which was $80 million more than in the prior second quarter, a 60% increase in revenues. Operating income in quarter two amounted to over $57.4 million, a positive turnaround of $70 million from the prior quarter two. While our time charter vessels generated over $97 million, the market environment created by geopolitical issues since February allowed our stop vessels to add a further $120 million to total revenue. This in turn provided over $91 million of EBITDA, a three-fold increase. The six-month performance was also impressive within the period, with EBITDA reaching over $133 million, double the previous EBITDA. While the company achieved a net income of $51.7 million in the six months, The fleet in quarter two enjoyed a high utilization of 93.6%, partly due to a reduction in the number of dry dockings in the quarter, with only three vessels completing dry dock in quarter two. Daily TCE per vessel in quarter two averaged close to $29,300, a 70% increase from the prior quarter two, while in the six-month period, daily TCE was on average $2,000. Sorry, $24,500. Voyage expenses, which include fuel costs, increased due to rising oil prices caused by the market conditions relating to energy supplies throughout Europe. However, total operating income, expenses rather, remained fairly stable, with an increase of about 1%, nudging average daily OPEX per vessel to about $8,300. partly due to a modest fleet increase. The six-month daily OPEX also remained at $8,000, partly due to a stronger dollar. Depreciation fell $2 million due to the value reductions last year of certain vessels, offset by a similar amount of deferred amortization. Quarter 2 finance costs remained relatively low at just $11 million. Although increases in interest rates pushed finance costs up, fortunately, to a manageable level, the company utilizing interest rate swaps to cover much of its exposure. The recent months have seen our cash resources increase substantially, placing 10 in a considerably better position than at the start of the year. This has provided us the ability to comfortably take delivery of the new shuttle tanker and allow the construction of the four new Afromaxis, plus the signing for an acquisition of a VOCC, as mentioned, which altogether should significantly change the age profile of the fleet and generate new revenue sources. Following our usual pattern for financing new acquisitions, much of the financing for these vessels, all with employment, will be from our own resources, with our usual kind lenders likely to participate in providing finance. However, clearly new financing may have an impact on our future total outstanding bank debt, which had come down by $70 million recently. But we estimate that the overall pace of debt reduction will still continue, if not accelerate, given our current cash resources, which should please our lenders, as will the recent indications of increasing tanker values, which will also much please us. And indeed, we do expect a strong remainder of the year, hopefully within a peaceful environment. And now I'll pass the floor to Nicholas.
Nicholas
Well, thank you for the good news. And hopefully we can report better news in November, I hope, or as good at least. And with this, I would like to open the floor for any questions. Thank you very much.
Operator
Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove the question from the queue. And for participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. Our first question is from Ben Nolan with Stifel. Please proceed.
Ben Nolan
Thanks. Good morning, guys. I guess my first question relates to asset prices, which you guys are just discussing a bit. Obviously, asset prices are a lot higher, both for secondhand and new builds. With a few exceptions, most of the growth recently has come through the new building market. Can you maybe just talk through sort of your appetite there? you know, ordering ships given how much of an increase there has been in the cost of doing so?
Nicholas
Thank you. Well, I believe our timing so far has been quite on target. We try to always keep a good position, and as the chairman said, very close relationships to our financiers so we can move when the prices are lower. And in that view, we have started... green ship initiative ordering four dual fuel vessels, I would say, at the direst times of pricing, a year and a half ago or a year and a bit ago, in the summer of 2021, in the middle of the pandemic. And also our LNG and our shuttle tankers were ordered about the same time. So we have a significant increase a profit, a book profit from our investments there, and we'll be enjoying a very good market with low rate even courses, George Sarov, as you always said. In the meantime, we are looking at an order book, which I have never seen an order book or saw such a low order book in my 30 years in business. So we believe that the earning capacity of our existing fleet is going to be maintained relatively strong to be conservative for the next couple of years. You cannot have enough vessels right now as we see it, and we expect some of the ships with maintaining high scrap values physically to have to leave the market. We will be only looking at the dual fuel vessels going forward. I think we said this in a couple of calls in the past, and nothing has changed on that. On the new buildings, we will be looking at dual fuel ships. We know that the value of those ships with inflation will be increased. And we will be looking to do those ships together with one of our clients, which we are discussing, as we've done in the previous one. Our model of profit-sharing that will cover all our obligations and gives us a small profit, and a profit-sharing above that with the major oil and oil users, we will maintain it. So we will not stop looking or rebuilding the future as long as the figures make sense.
Ben Nolan
Okay. I appreciate the color there. And then my second one, and I'll turn it over, relates to the ATM. I know you guys did sell a little over $4 million, almost $5 million worth of shares on the ATM during the second quarter and the release. And obviously the share price is materially higher than it had been. Just trying to get a sense of where you think about that. You're making a lot more money, so you don't need the ATM. It wouldn't appear as much as you did, but the flip side of that is the cost of capital is meaningfully better than it had been. So how are you thinking about the use of
Nicholas
Well, that was actually completing a program that the board of directors had authorized within the second quarter. I think that's why we have this small amount just to do some housekeeping from our side. And as you rightly saw, there's a significant daily cash flow building up as we speak today. And so we will not be using the program in any significant manner going forward as we see things today.
Ben Nolan
Very helpful. I appreciate it. Thank you.
Operator
Thank you. As a reminder to Star 1 on your telephone keypad, if you would like to ask a question, we will just pause for a brief moment to see if there's any final questions. There are no questions, so I will hand the conference back over to management for closing comments.
Nicholas
Thank you. Well, I guess when we have good news, you don't need any more news. So I think that is a good sign. Again, I would like to thank all of our long-term shareholders for supporting the company. We've been here quarter after quarter maintaining and having a stable hand through the storms that we really went through. I think George mentioned that we've been through five major crises, and every time the company came out stronger. a year and a bit ago in one of those schools we said that you know there is a storm happening out there but we're navigating the ship steadily and we're looking forward to take measures to take advantage of the storm on the other side and it seems that we're out of the we can see the horizon now i think there is more uh more good news to come uh forward i get the feeling from the the appetite of our clients which are out there looking to put their hands on good quality management, good quality ships. So our model, as the chairman said, has not changed. We are not changing our views depending on each quarter. We have a long-term view of where we want to go. And with the mix of sport... and time-chartered employment. We know that we can sleep at night, whatever happens, by repaying all our obligations and living a little bit to pay dividend even in the worst market conditions. I can say that. I'm sure many are very successful. And when things are strong, we still have a lot of ammunition to be able to take off the market immediately, as it has seemed in the last couple of quarters and mainly. And I think we have about... close to 30 cents. Every $1,000 that the market goes up, the way we are structured, that's another 30 cents or 28 cents, as Paul said, on our bottom line. And with that, hopefully, we will be reporting as good or better news for the nine months. And I would like to take also, because do not forget the expenses. We are in inflation. Our technical managers, our seafarers are putting a lot of effort to maintain logical, good and under-budget operating expenses. And I think we have been doing this. We took the preemptive action with their advice to take nine vessels. If you remember, if you go back to our old news, you would see that we said we are taking nine vessels that were supposed to be dry docked in 2023 and the later part of 2022 out in the market. It was painful at the time, but now those ships that are in the market and they're actually adding much more, and that's why we're expecting much more or good, better results for the Newtonian wood here on the remaining of the year. And that's why I want to thank all our associates, our people on board the ships, our brave seafarers who have, as soon as they were coming out of the pandemic, they had to face a war situation. And some of our ships, quite a number of our ships, were manned by a combination of Russian and Ukrainian seafarers. And all of them very professionally co-existed and made sure that the company's interests are above anything else. And we want to thank them. And also to wish General Manager Mr. Haji Michael here a happy birthday. Thank you very much. Keeps us online here. And all the best and looking forward to see you soon face-to-face. And I hope the remaining of the year will be healthy, prosperous, and peaceful for all. Thank you very much.
Operator
Thank you. This does conclude today's conference. You may disconnect your lines at this time. And thank you for your participation.
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