Tsakos Energy Navigation Limited

Q4 2020 Earnings Conference Call

3/24/2021

spk01: Thank you for standing by, ladies and gentlemen, and welcome to SACAS Energy Navigation Conference call on the fourth quarter and year-end 2020 financial results. We have with us Mr. Takis Arapoglu, Chairman of the Board, Mr. Nicholas SACAS, President and CEO, Mr. Paul Durham, Chief Financial Officer, and Mr. George Soroglu, Chief Operating Officer of the company. At this time, all participants are in a listen-only mode. There'll 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, Wednesday, the 24th of March, 2021. I now pass the floor to Mr. Nicholas Parnosis, President of Capital Link, Investor Relation Advisor of Tacos Energy Navigation. Please go ahead, sir.
spk05: Thank you very much, and good morning to all of our participants. I am Nicholas, board notice of Capitalink, investor relations advisor to Chakos Energy Navigation. This morning, the company publicly released its financial results for the fourth quarter and the year ended December 31st, 2020. In case we do not have a copy of today's earnings release, please call us at 212- 661-7566, or email us at 10 at capitallink.com, and we will have a copy for you emailed 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.cenn.com. 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 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 Security Litigation Reform Act of 1995. Investors are cautioned. that such forward-looking statements involve risks and contingencies which may affect STEM business processes and results of operations. And at this moment, I would like to pass the floor to Mr. Arapoglou, the chairman of Chakos Energy Navigation. Mr. Arapoglou, please go ahead.
spk03: Thank you, Nicolas. Good morning and good afternoon to all, and thank you for joining us today. I hope you are all staying safe and healthy. Despite the challenging market conditions, 2020 proved to be a year of strong operating profitability for TEN. This allowed us to continue paying dividends, repaying yet another issue of preferred stock, reduce bank debt, and meet all our other obligations. We sold all the tonnage to maintain a young fleet and were able to take non-cash corrective action on certain vessels. In essence, nothing new or different from what TEN has been consistently doing every year since inception. Today, with a substantial cash position, accelerated special surveys to best utilize poor market conditions and have the fleet on spot TEN is perfectly positioned to benefit from the anticipated recovery in the global economy and the resulting release of demand for oil and oil products. The board joins me in congratulating Nicholas Tsakos and his team for yet another year of best-in-class performance, which fully validates our strategy. And with this, I pass the floor to Nicholas Tsakos.
spk06: Thank you, Chairman, and good morning to all of you on the other side of the Atlantic, and good afternoon to you here in Europe. And thank you for joining our call. It was exactly a year ago to the date where our chief operating officer set the exact same date for our call. When we were talking back on the 24th of March of 2020, We were in the beginning of this pandemic and everything looked very, very new, very strange, and we were all at a loss. A lot has gone under the bridge since then. Unfortunately, a huge loss of life worldwide. So it is really a different world than we entered exactly a year ago, our call today. However, as the chairman said, we were able to navigate these difficult times, maintaining, as hard as it was, a steady hand on the wheel. And we are coming out of what has been a very troubling time. period in very choppy waters or stormy waters to say the least, in calmer waters helped a lot by the vaccinations that are happening all over the world. In my last call in November, when we announced the nine-month results, I was hoping that we would not have hit a third, or whatever the number is, wave of lockdowns around the world. Unfortunately, it has happened. It's still happening. In some parts of the Western world, things are becoming more difficult as far as the pandemic. However, at the end of the tunnel, we have the light, which are the vaccines. A big percentage of the population, hopefully, will be vaccinated by the end of this and the next quarter. This miracle, this medical miracle that happened in a very short period of time, has given the world a new go-around, and this is something we are seeing in the rates as of the beginning of the year. 2020 was a rollercoaster year. Things are looking more positive. The natural supply and demand equilibrium right now is very tight. And we saw it even last night and this morning. When the Suez Canal, and this was not April's full day event, it was the real closure, and it's still partially closed of the Suez Canal, that has put the market through the roof, mainly in futures rates. So we have been able to renew a fleet as Mr. Arapoglou said, our chairman. We sold seven vessels. We got a new environmental friendly four vessels and in the meantime added two new buildings. All of the six new vessels that we have already delivered or will be delivered are charted with long accretive rates. In the last quarter, a lot of attention has been made to rechart nine vessels, three of them being our LNGs. So in a different market environment, we are very proud that the LNGs and all our tankers keep on ticking without a day lost. And that has been a really remarkable achievement from the commercial and technical side, and I would like to thank them going forward. We are seeing significant signs that we are much closer to stronger rates. We're seeing the peer markets, dry-carbon containers, skyrocketing at levels that we have not seen for at least 12 years, back in 2007 and 2008. And we expect that the V-shaped tanker rate recovery is not far. We have kept our vessels significantly in the spot market. We have 31 ships ready to take immediate advantage of that turnaround, and another 12 vessels with profit-sharing arrangements. So the company is maintaining its profitability, is maintaining its dividend policy during very, very difficult times. It's reducing debt significantly. And we're looking at a much healthier picture by the next quarter. And with this, I will ask... our COO, Mr. George Zaroglou, to give us a little bit more details of what we have been seeing and what we are facing as we speak. And I will be there for answers if you need anything.
spk04: Thank you. Thank you very much, Nikos. And good morning to all of you joining our earnings calls. We report today a profitable year for the 2020 operations. In fact, a 40% increase in profitability from 2019. 2020 has been a rollercoaster year for the tanker industry and the world because of the COVID-19 pandemic and its economic, social and health-related repercussions. We continue to successfully navigate the logistic and regulatory challenges of COVID-19 with no impact to our operations so far. This has been the biggest challenge of the last 12 months and continues to be the number one priority. Because of the pandemic, the lockdowns, border closures and reduced airline capacity, the shipping industry has experienced significant challenges with timely crew changes. We continue to safely perform crew changes, but problems with restrictions and logistics remain as different parts of the world open and close their borders asynchronously following virus developments. We want to take the opportunity to thank one more time all our seafarers and the onshore personnel for their hard work, patience, dedication and professionalism during this unprecedented time. We will continue to work hard to normalize crew changes and bring seafarer safety back home to their families without disrupting the operational readiness and efficiency of the fleet. This has been and will continue to be the number one priority until crew changes and crew repatriation return to the pre-COVID normality. Let us go to the slides of our presentation. In slide 3, we see that since 10 inceptions in 1993, we have faced four major crises. But it's time the company, thanks to its operating model, which is built to be crisis-resistant, has come out stronger. From four modern vessels in 1993 to a pro-forma fleet of 70 vessels for an average 15% annual growth in terms of deadweight tons in the four decades. This time has not been an exception. Last year, we sold seven tankers with an average age of 14 years and replaced them with four eco-designed, environmentally-friendly new buildings built in South Korea, two Suezmax and two Aframax tankers that were chartered to an oil major on minimum five-year contracts with options that go up to 10 years. The last of the four series order has been delivered to charter as last quarter. The company continues the current growth program with construction of two vessels in the specialized shipping sectors, namely the DP-2 shuttle tankers and LNG, that both have already been fixed to long-term employment. In slide 4, we see the pro forma fleet and its current fleet profile, employment profile. We have a combination of vessels in fixed time charters and flexible employment contracts, time charters with profit sharing, COAs, and spot trading, that capture the market's upside. All dark blue color vessels, 23 in the slides, are on fixed rate time charters, while the light blue and red color vessels, or more than two-thirds of the fleet currently in the water, have exposure in the market's upside. This means that 10 is well-positioned The left side presents the all-in break-even cost of the various vessel types we operate. As you can see, the cost base is low. And in addition to the low shipbuilding cost, we must highlight the purchasing power of Tsakos Kolumbia Ship Management, the continuous cost control efforts by management to maintain a low operating expense average for the fleet, and the low general and administrative expenses while keeping a very high fleet utilization rate quarter after quarter. We almost had 95% utilization for the year after bringing forward a special survey of nine vessels to take advantage of a weaker market. And thanks to the profit-sharing element that is a big part of our fleet, we enjoy the benefits when the market conditions As demand for oil continues to recover from the lows of last year and oil inventories continue to fall, we expect the freight market to recover from current levels. And for every $1,000 increase in spot rates, we have a positive impact of 60 cents in annual EPS based on the number of 10 vessels that currently have exposure to spot rates. Debt reduction in slide 6 is an integral part of the company's capital allocation strategy. During last year we have repaid 160 million of debt and repurchased the successful 50 million CDC preferred shares. And so our net debt to capital ratio is currently below 50%. In addition to paying down debt, growing the company through timely sale and purchase and new building acquisitions, we have continued to reward our shareholders with dividend payments. We announced today a 10 cents per share dividend for common shareholders that will be paid in June. Since our listing in New York Stock Exchange in 2002, we have rewarded the company's shareholders with almost half a billion in dividend payments and 113 million in share buybacks. So besides debt repayments, cash dividends, and buyback of common and preferred shares, which are the three main pillars of the company's capital allocation, Fleet growth and renewal is the fourth pillar. As far as the market is concerned, it has been an unprecedented year for global oil demand last year because of the COVID pandemic and the measures to contain it. 2020 was the first year of negative growth since the period of the Great Recession in 2008 and 2009. Year-end demand was down by approximately 8.8 million barrels per day from the year-end 2019 numbers, or approximately 8% of demand. Most of the losses are in jet aviation fuel. The expectations for 2021 are for oil demand to grow back We are on the growth trajectory for all demand and full recovery to the pre-COVID levels depends more or less on how quickly global jet fuel demand will return to the pre-COVID levels and of course on how quickly and how well the world will manage the vaccine rollovers and the latest virus mutations. Nearly all demand reductions are found in the OECD countries while non-OECD countries, the non-OECD world continues to have strong demand growth and the International Energy Agency continues to increase the demand expectation for China and India as their economy recovers and demand continues to grow. Non-OECD countries continue to be the growth engine for oil demand. On the supply side, OPEC Plus producers are gradually easing unprecedented production cuts. There is an additional 7.7 million barrels per day of shut-in production that OPEC Plus plans to gradually restore over the course of the next year. Compliance with this catch continues to be very high. Oil inventories in OECD countries continue to draw. The expected demand growth of 5.5 million barrels per day of this year and OPEC Plus gradual oil production increases should be very positive While all demand continues to grow, let us look at the forecast for the supply of tankers. The order book as of February stands at around 353 tankers, or 7.5 percent of the fleet is expected to be delivered over the next year, which is the lowest that we have seen in almost 30 years. However, we should notice that we have 20 years. With the upcoming environmental regulations, we expect to see a push for more tankers approaching or above 20 years to go for scrapping. 2018 was the highest scrapping year of records. Last year was lower as expected. And so we expect to see a pick-up regulations are on the horizon, and a weak market for the last nine months creates an unfavorable trading environment for those vessels that approach or are currently above 20 years. In summary, on the oil demands, the recovery continues to be strong, and this strong recovery is going to be translated into 5.5 million barrels per On the supply of oil, production increases, we believe, are on the horizon by both OPEC Plus and other non-OPEC producers. On the vessel supply, the order book to the current fleet ratio is at historical low levels, which implies at minimum a balanced market for the next 18 to 24 months. Regarding tense balance sheets, we have a crisis-resistant proven operating model. We have a modern fleet well positioned to capture the positive market development which we expect from the second half of 2021. We have a strong balance sheet and strong banking relationships that will allow the company to take advantage of the opportunities as they will be presented. With the expectation of better days ahead, we conclude the operational part of the presentation. Paul will go through the financial highlights for the fourth quarter and the full year.
spk02: Thank you, George. Well, as we've been emphasizing, 10 had a profitable year in 2020, generating in total net income of over $59 million before non-cash charges, mainly vessel impairments. Revenue in 2020 rose to an annual record $644 million for 10, mainly due to the strong demand for floating storage in the year. We had 94% utilization in 2020 and even 91% in quarter four, which are good signs given that we had nine dry dockings in the year. Average daily TCE in the year was $23,600, a respectable average compared to market rates, boosted by profit share totaling $47 million in the year. EBITDA increased to $267 million, of which $33 million was in Q4, both significantly contributing to cash reserves by the year end, despite the $50 million redemption of the C-series preferred stock. In Q4, revenue fell by $44 million compared to the prior Q4. indicating a weakening of the market in the latter part of the year and contributing to a quarter four net loss for 10 of just over $14 million, before non-cash impairments of over $15 million in the quarter. However, even given these conditions, 10, with half the fleet on time charter, successfully avoided potentially significant losses. Our time charters still provided the cash to cover nearly all OPEX, G&A, and finance costs, with vessels on spot providing a further $12 million to cover the shortfall. Generally, our costs were kept at stable levels, expense categories being similar to the previous year and quarter, despite dry dockings, with average daily OPEX per vessel for the quarter and year up slightly to $7,800. partly due to dry dockings and a weaker dollar. Quarter 4 finance costs fell by $4.5 million, with interest falling nearly $5 million, mainly due to lower interest rates, our cost of debt remaining below 3%, and due to reduced loan margins and shrinking outstanding debt, while positive bunker hedge valuations rose by $4 million. We sold five vessels to third parties in 2020, generating $94 million and prepaid $54 million of loans, freeing $40 million of cash. We shall be looking for further sales to consider over the next 18 months. We have an LNG carrier and shuttle tanker being built for a total of over $280 million. of which we have paid $65 million to date and have arranged related pre-delivery financing at excellent terms for the ships, as both have charters that will generate lucrative cash flow from delivery. Another $384 million net in scheduled repayments and loan prepayments were made in the year, while new debt for delivered vessels in 2020 and recent pre-delivery debt and loan refinancing amounted to over $340 million, in all bringing total debt down to $1.51 billion, with net debt remaining at 48 percent. Given the current state of the tanker market, it may seem difficult to expect any major recovery in the near term. But there are, in our opinion, some strengthening positive stirrings, as both George and Nikos have said. on the horizon. So we do expect the outlook to be positive from mid-year on. And in the meantime, our time charters will hold the fort just as they did in quarter four and are doing in quarter one. And this concludes my comments, so I'll pass the call back to Nicholas.
spk06: Thank you, Paul. for your detailed analysis of the results and as we said we are happy to have this is going to be our next year it's going to be our 20th year as a public company on the New York Stock Exchange and We hope we will maintain our continuous dividend payment and profitability as we have always done. And it seems that the prospects going forward are quite positive for a very strong recovery. similar to what we are seeing in other segments of the industry. Usually the tankers follow dry cargo and the container market, and this is happening as we speak, where we see unprecedented high levels for demand as infrastructure building is going back and is happening. The same is evident a lot on the product carriers, a lot of refineries. are shutting down in the Western world, and more demand for products is required around the world. A lot of coal mines are being reduced in places like China, and that helps our LNG and fuel imports in these vast markets. India at the same time is importing more and more from the West, or at least from places like West Africa, and it's not so dependent anymore on the Middle East, increasing ton miles as we go forward. And the normal contenders like Libya, who has been a big participant of the Mediterranean market, has increased since our last presentation in November. Another 16% is out. So everything helps. And more importantly than anything else is the supply. very small single-digit supply coming in over the next two years as we speak. So I think we are looking at a significant super-cycle happening here sooner rather than later. At the same time, We are seeing large conglomerates like Equinor, which is one of our largest also, clients coming in and starting to work on what they say is the largest so far oil field in the North Sea. the front field, which is another sign that product is going to be there for the foreseeable future for the limited amount of vessels that are. Also, low inventories. As we speak, people have been burning their cheap inventories, and I think they will need a significant uplift as we go forward. Hopefully safety for everybody. We will be seeing better times. We have not lost a single day in our renewal program. I think, as Paul mentioned, we replaced seven vessels, are taking in six brand-new vessels, four already earning accretive rates for us, two are already chartered and fixed, our shuttle tanker and our LNG. So we have tried to keep a tight ship. The security of our seafarers comes first, their mental health comes first. The physical health, we had, you know, within 3,000 seafarers around the world, we had, I would say, less than 1% COVID cases. And we have been successful in containing those. It is a struggle every day. It is a struggle to make sure that our people are safe on board and we're not creating a COVID bubble. And it is very important, I think, for all the authorities around the world to make sure that seafarers are considered first line receivers of the vaccines. We have people having to wait for a month to get their vaccines before they go on board. And this should not be the case. They should be able to go on board. provide the service to the global economy without having to be penalized or put themselves or their colleagues at risk. It's a very big issue and we are trying to support various authorities and governments to make sure that this will go on and it will make our life and the life of our seafarers much, much easier, healthier, and it will significantly reduce operating expenses Because in order for us to be able to repatriate many times our long-serving seafarers, we have to navigate the vessels physically into places like South Africa or the Philippines, where there are open borders for them and they are received in a humane manner. And with this, I would like to open the floor for any questions. Thank you very much.
spk01: Thank you. Ladies and gentlemen, as a reminder, if you wish to ask a question, please press star and 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star and 2. Once again, please press star and 1 if you wish to ask a question. Your first question today comes from Randy Givens from Jefferies. Please go ahead. Your line is open.
spk07: Howdy, gentlemen. How's it going?
spk06: Hello, Randy. Very well. Looking very forward to see you face-to-face one day soon, with or without a mask, that is.
spk07: That would be good. Come to Houston, no mask required. But if I make it to Athens, I'll let you know. Question around your charters. Can you provide some color on the nine vessels recently chartered, both the rates and the tenor?
spk06: Yes, I think we have renewed four of our product carriers for another three years to their existing charter, which is a major state oil company based on our typical accretive minimum and profit-sharing arrangements. Then, of course, we have taken, we have used this period of time to charter out, and I was very happy to make sure that we chartered out our LNGs from anywhere between, from two up to ten years, without, directly either from the shipyard or from their last shipyard. So that, as you know, on an LNG it could, if you have a vessel on the spot, it could cost millions and millions to your bottom line. And we're happy that we do not have to spend any of that. Exactly the opposite. The ships are earning immediately after their current delivery's accretive rates. And on top of that, we have conventional Suezmax. an aftermath on yearly charters, extension of charters, and our shuttle tanker for a very long period of time. So I think that's the very quick rundown of the nine vessels that we have renewed in the first quarter, because we have seen the signs of the charters looking to take cover.
spk07: Okay. And then next question, if you turn to slide seven, just looking at kind of the dividend payouts, we've seen this kind of semi-annual dividend bounce around lately. How do you view the dividend going forward? I know you kind of trimmed it now to $0.10 a share. What was the thought process behind that and kind of outlook from here? Well, as you know, we are in...
spk06: a very, you know, we are very much dividend-driven as an organization. The management and the family most owns... owns a very large part of the stock. So dividend for us is very, very important. And so we're always pro-dividend. And we try not to miss any of our dividend payments. We believe this is the best way to reward. And I think, as George, our COO, mentioned, in the 20 years of our being 20 years next year on the stock exchange, We will have paid, hopefully by then, in excess of half a billion dollars in dividends. And if you add another $160 million of buybacks, we will have returned between dividends and buybacks more than $650 million to the shareholders. Got it.
spk07: All right, and then I guess lastly, with 1Q largely over, right, how are rates compared to 4Q, and where do you expect rates to go from here? Obviously, the forward curve is pricing in some strength, time trial rates, or roll-up spot rates. Can you give some kind of thoughts on the outlook for the next three, six, nine months?
spk06: I have to say, I think we spoke together in November and I mentioned that we are hoping to see a much better first half depending on any additional lockdowns. So in one hand, unfortunately, in places like Europe, we are seeing severe lockdowns happening again that are putting a delay to the full recovery of our aides. On the other hand, we have the positive miracle of the vaccines that I think came out in a very timely manner. Big percentages of the populations are being vaccinated. We are hoping to have at least an open summer. around Europe, and I'm sure the United States, the case is the same. We are glad that the majority of the Far East has been able to control the virus in the last couple of quarters much, much better. So although we are facing another, hopefully the last uphill battle with the lockdowns, I think we could turn a corner as early as next quarter, which is next in a couple of weeks. And we saw this. We saw this happening with all the... We saw all this happening today with, and I have to say we did not organize for the closure of the Suez Canal just because it was our call. It was an incident which is not, it will have some delays, but we saw how the futures and the spot market rose just in that. So the market is well balanced. April, May, for sure, by June when our annual meeting is, and hopefully we will see you to face, we will be celebrating in a much better market environment. Sounds like a plan. Thanks so much.
spk00: Thank you.
spk01: Thank you. Ladies and gentlemen, as a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. Star 1 to ask a question. Ladies and gentlemen, and once again, if you'd like to ask a question, please press star one.
spk06: Well, if there are no more questions, I will ask our chairman.
spk03: to give his wise words, and I will close after that. No wise words, Nico. Thank you. Thank you all again for joining, and we all look forward to 2021 being a great year as well for the company and the stock.
spk06: And from my side, I would like to wish everybody a very healthy, safe and prosperous 2021. All of us going back to normality and with all the lessons that we were taught. As I said, exactly a year ago, our COO gathered us here for last year's. end of the year results. Exactly a year ago things were very, very different. We have all grown through this. We navigated a steady ship in very turbulent waters. We have maintained and I'm very proud of our renewal program with the new ships. Sold on time, the seven assets. Took delivery of four already without losing almost a day in a very difficult environment. Those vessels have already been earning accretive rates, which you see to the bottom line right now. Two more vessels are being built for us. Hopefully they will be delivered within this year, one in 2021 and the next one in 2022, both of them on long-term charters. And we're also looking at the opportunities... out there. I would like to thank all in the CHAPOS group for keeping a flawless operation regarding the safety of our seafarers. And I think this is a priority for us, everybody in the group, is to make sure that we wake up every morning on a healthy ship. And with that, looking forward to speak to you next quarter in a very very much better environment. All the best from all of us here in Greece, and happy Easter and holidays to all. Thank you very much.
spk01: Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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