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spk00: Thank you for standing by, ladies and gentlemen, and welcome to TACOS Energy Navigation Conference Call on the first quarter 2021 financial results. We have with us Mr. Takis Arapoglu, Chairman of the Board, Mr. Nicholas TACOS, President and CEO, Mr. Paul Durham, Chief Financial Officer, and Mr. George Saroglu, 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. And now I pass the floor to Mr. Nicholas Bonosius, President of Capital Link, Investor Relations Advisor of SACOS Energy Navigation. Please go ahead, sir.
spk04: Thank you very much, and good morning to all of our participants. I am Nicolas Bornois of Capitalink, investor relations advisor to Xacos Energy Navigation. This morning, the company publicly released its financial results for the first quarter of 2021. In case you do not have a copy of today's earnings release, please call us at 212-661-7566. or email us at 10TEN at CapitalLink.com, and we will be happy to send a copy to you right away. Please note that parallel to today's conference call, there is also a live audio and slide webcast, which can be accessed on the company's website on the front page at www.TENN.gr. The conference call will follow the presentation slides, so please, we urge you to access 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 calls. 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 concerned that such forward-looking statements involve risks and uncertainties which may affect business prospects and results of operations. And at this moment, I would like to pass the floor on to Mr. Arapoglou, the chairman of Xakos Energy Navigation. Mr. Arapoglou, please go ahead, sir.
spk01: MR. Thank you, Nicolas. Good morning, good afternoon. Thank you for joining our call today. Producing a positive operating income under the present market conditions is a great feat. These results are fully in line with our industrial model and strategy, which is to provide high-quality service to our blue-chip customers while ensuring high levels of cash generation to cover our obligations, even in today's weak market. Continuous fleet renewal, state-of-the-art vessels, operational excellence, and ample liquidity protect TEN and position it to benefit greatly from a market upturn. as we all expect. Despite the challenging market, we continue to pay common dividends in an uninterrupted way since inception. We continue to reduce debts and repay outstanding preferred issues. And, lastly, high governance standards. Both, I know, are areas of increased focus by you, the shareholders. And with this, I pass on the floor to Nikos Tsapos.
spk05: Thank you, Nikos. Thank you, Chairman. Although it's never a pleasure to report a loss-making quarter, I have to say that with the efforts from everybody in the right direction, the first quarter losses were significantly better than the fourth quarter because I think this is what we are... That's what logically we are comparing ourselves to the last quarter of 2020. I think we had our losses in excess of what the first quarter. So in that way, we are going towards the right direction. As we have always been saying, the company strategy of protecting all our obligation with our time charter fleet and profit sharing is working once again. We would ever be to have a positive operating performance, a small one, as Paul would say, just a couple of million dollars, but I think this gives us the ability to take care of all our obligations from the vessels that are on time charter and on profit shares and allows the company to maintain its growth. We are in... down cycle, as Mr. Saroglu will show in his slides, and every time the company comes stronger out of it. What we're facing today, it's not only a challenging market, but I think it is a structural change in our industry, and I think this is what we and the heads of our environmental and operational headed by Mr. Eftimios Mitropoulos, former head of the IMO, and his team, we are looking on talking to our clients of what will be the ship of the future. And I think this is something we spend a lot of time, a lot of effort, And we feel very proud so far with the results that we are achieving. Without losing, of course, our eye from the ball of what we're doing day to day to make sure we run a tight ship, we make sure that our seafarers, and personnel have been able to safely navigate through this unprecedented COVID crisis that seems to be coming back again from all over the world. And I will, of course, make my comments further down and I will be answering questions, but I will take again this opportunity to thank the command and the officers and staff of the U.S. Coast Guard for their immediate response to one of our seafarers, COVID scare, and on our good vessel the Artemis offshore the west coast of the United States, on its way crossing towards Korea. And I have to say that within hours from our first report to the U.S., of course, that two helicopters together with a bunkering fueling helicopter were above the waters on our vessel actually picking up our seafarer who now is recovering in a San Francisco hospital. I think these are things that make us proud and makes all our seafarers feel that they belong somewhere and they're not alone in this vast ocean and in these circumstances. So, again, thank you very much to all. And I think we are going to be doing a much more formal thing. in approaching the right authorities going forward. And with that, I will ask George Saroglou to take us through the developments of the last, I would say, 90 or 180 days, and we will be back to answer some questions. Thank you very much.
spk03: Thank you, Nikos. Good morning to all of you joining our earnings call today. I start the call by thanking the officers and staff of the U.S. Coast Guard for their successful efforts in rescuing one of our seafarers 250 miles off the coast of San Francisco. Human life is of paramount importance at sea or ashore, but saving life at sea most of the times is most challenging due to the prevailing circumstances. circumstances, whether or otherwise, and events like this one make all of us very proud to belong to the international shipping community by which the U.S. Coast Guard leads by example. We navigate for over a year now through the COVID pandemic, and although we see the light at the end of the tunnel, this unprecedented crisis is not over yet. Our priority continues to be the health and well-being of our crew and shore personnel to have no COVID incidents in the fleet and no disruptions of operations. I am pleased to report that we have managed the situation with no major incidents and for this reason I would like to offer once again congratulations to our seafarers and shore personnel for their resilience and professionalism during this stressful period to thank Chacos Columbia Ship Management, our technical managers, for their efforts in keeping seafarers safe and in managing crew changes in an environment where regulations and lockdown restrictions made planning a mission impossible. Our IT for making sure we operate remotely seamlessly and without disruptions. And last but not least, the team of medical experts that is helping all of us almost daily with good advice in dealing with a deadly virus. The tanker market has been very weak. for more than a year now. The price of oil has recovered from the historical levels we have seen during the first half of last year, and that made the overall market weakness even harder as banker prices came almost back to their pre-pandemic levels. But there are also a lot of positives to consider. Oil demand is recovering from the monumental losses of last year, and after a strong demand growth year in 2021, Experts now see a return to the pre-COVID demand levels by next year. OPEC Plus managed the collapse in demand diligently and with discipline and has now restored more than 40% of the initial 10 million plus production cuts And plans to gradually add more barrels, which means more cargoes to a market that is thirsty for oil, as global oil stocks are now below the key five-year average levels in all main demand areas. OECD, and the developing world. And, of course, the supply of new tankers continues to be at historical low levels while the global fleet is getting older, and new upcoming regulations are expected to push the phase-out of a big part of this aging fleet. Let us go to the slides of our presentation. In slide 3, we see that since 10th inception in 1993, we have faced four major crises, but each time the company, thanks to its operating model, which is built to be crisis-resistant, has come out stronger. From four modern tankers in 1993, the pro forma fleet of 67 vessels for an average 15% In slide 4, we see the pro forma fleet and its current 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, 24 in the slides, are on fixed time charter rates, while the light blue and red color vessels for two-thirds of the fleet currently in the water have exposure in the market sub-site. This means that TEN is well positioned to capture the positive tanker market fundamentals and expected recovery in freight rates. We took advantage of the low freight environment to bring forward a number of scheduled special surveys in order to have these vessels available once the tanker market rebounds. And since fleet modernity is a key element of our operating model, we recently concluded the sale of three of our older tankers, a 2003-built Panamax tanker and two 2005-built Truesmax tankers, which we replaced with two new building orders that will increase the company's exposure in two specialized sectors, namely in the DP-2 shuttle tanker and LNG categories, with both vessels coming with long-term employment attached. Slide 5. The left side presents the all-in break-even cost for the vessel types we operate in 10. As you can see, the cost base is low. During the first quarter of this year, the revenue generated from the time charter contracts was again sufficient to cover the company's cash expenses, paying for the vessel operating expenses, overhead, chartering costs, and loan interest. In addition, we have to highlight the purchasing power of TCM and the continuous cost control efforts by management to maintain a low OPEX environment for the fleet. while keeping a very high fleet utilization rate quarter after quarter, which for this quarter, despite bringing forward scheduled dry dockings ahead of time, we achieved an overall 92% utilization. And thanks to the profit-sharing element, a cornerstone of TEN's chartering strategy, for every $1,000 increase in spot rates per day, we have a positive impact of 57 cents to the annual EPS based on the number of TEN vessels Slide 6, debt reduction is also an integral part of the company's capital allocation strategy. Since the company's debt peaked in December of 2016, we have repaid 281 million of debt and repurchased 100 million in two series of step-up preferred shares, the B and C series that we had outstanding. Today, the net debt-to-capital ratio is at 50.1%. Slide 7, in addition to paying down debt and growing the company through timely sale and purchase and new building transactions, we continue to reward shareholders with dividend payments. We announced today $0.10 per share dividend for common shareholders that would be paid on July 2021. Since the company New York Stock Exchange listing in 2002, TEN has rewarded the company shareholders with Regarding the markets, slide 8, it has been an unprecedented year for global oil demand because of the COVID pandemic and the measures to contain it. In 2020, we had the first year of negative growth since the period of the Great Recession in 2008-2009. Year-end demand was approximately down 8.6 million barrels per day, below the levels of the 2019 year-end demand figures, or approximately 8% down. Most of the losses were in jet, aviation, fuel category, as mobility and traveling came to an almost complete standstill last year. The expectations for 2021 is for oil demand to grow back 5.4 million barrels per day and another 3.1 million barrels per day in 2022, reaching the pre-COVID oil demand levels at year-end 2022. Full demand recovery, of course, depends on how effective we are going to be in continuing to deal with the virus and its mutations. Nearly most of the 2020 demand reductions were found in the OECD countries, mainly North America and Europe. For the OECD world, even from the second half of last year, the International Energy Agency raised demand estimates, particularly for China and the rest of the developing Asia. This year we have seen the OECD countries rebound from the low base level, in addition to the expected demand growth coming out of China and developing Asia. On the global oil supply front, OPEC-plus producers continue to manage supply with discipline. Almost half of the 10 million barrels of production cuts have been returned to the market. The next OPEC meeting in two days will decide on production levels from August 2021. As inventories in developed countries and in the developing world are coming down below the five-year average levels, an oil demand is expected to grow. OPEC Plus will continue to grow production levels in order to meet incremental oil demand. Higher demand from the second half of the year and the release of additional barrels to the market should be the positive catalyst for tanker demand and tanker rates. On slide nine, with the oil demand recovering, let us look at the forecast for the supply of tankers. The order book as of May stands at around 6.6 percent over the next three years, the lowest in almost more than 20 years. And at the same time, a big part of the fleet is over 15 years. 360 vessels, or almost 8%, are currently above 20 years. Upcoming environmental regulations could push more tankers approaching or above 20 years to go for scrapping. And as the next slide highlights, 2018 was the highest scrapping year of recent records. Last year, scrapping was lower than expected. However, this year, With the first six months gone, scrapping in both absolute number of scrapped vessels and in deadweight ton already exceeds the full year 2020 statistics. And with regulations coming and approximately 8 percent of the global fleet above 20 years, we expect the scrapping numbers for 2021 to accelerate further. To summarize, oil demand, the recovery continues with strong growth expected in 21 and 22. Oil supply. More production increases are on the horizon by both OPEC Plus and other non-OPEC producers. Order book supply of tankers. The order book to current fleet ratio is at historical low level, which points to a recovering and stronger freight market for the next between 24 months. Tenth, balance sheets. We have built a crisis-resistant operating model. We have a modern fleet well-positioned to capture the positive market developments, which are expected to start from the second half of this year. We have strong banking relationships that will allow the company to take advantage of the opportunities that will be presented. And lastly, looking at how other shipping sectors are faring right now, Freight rates and asset prices for both containers and bulkers are currently going through a very strong market. If past history can be guidance for the future, there is always about a six-month lag before there is a positive spillover effect to the lagging shipping sector. And so tankers should be the next shipping sector to enjoy a better market. With the expectation of better days ahead of us, I will ask Paul to walk us through the first quarter of 2021 financials.
spk02: Thank you, George. Well, quarter one started with positive expectations despite the difficult market. And we still have such expectations as revenue was $140 million and our loss in quarter one was only $4.8 million, which was less than feared as the loss was successfully contained by our time charters that were still able to as George has mentioned, still able to cover all cash expenses, leaving a surplus of $12 million, while half of our fleet, on spot, were able to generate a further $18.5 million. Much of our optimism was also due to the healthy cash reserve inherited from the strong market of the past year, allowing us to meet the challenges of the current downturn. Our results were also affected by taking advantage of the market lull to advance four dry dockings into quarter one, allowing the vessels to exploit a better market later in the year. However, market conditions did not allow us to benefit much from profit share arrangements, in contrast to the strong prior quarter one, although we do expect profit share will play a major role in the eventual rebound. Daily average TCE per ship was $18,000, a satisfactory average given the large increase in bunker costs and the poor rates available in the market. Operating expenses fell $4 million due to tighter economies in light of market conditions, and partly due to reversal of prior year accruals relating to crew tax. Average daily OPEX per vessel fell 6% to $7,400, from $7,900 to $7,400, that is rounded numbers, despite dry dock costs and a weak dollar. G&A expenses in quarter one fell 10%, as management also applied tighter controls on overheads. As a result of all these factors, TEN achieved a positive operating income of $2.2 million. In addition, finance costs fell by $27 million due to reduced debt by $30 million, and to lower interest rates and margins, and to a $5 million increase in bunker valuations compared to the prior quarter one. Since the start of the year, poor rates reduced our EBITDA to $37 million. but we were still able to maintain adequate cash reserves, while time charters and vessel sales continue to generate decent cash flow. In fact, we recently sold two more Suez Maxis in a sale and leaseback deal, releasing $17 million cash after repaying $27 million debt, plus a Panamax, the Tanker Maya, releasing $4 million cash after $5 million debt repayment. And we aim to sell more vessels as part of our fleet renewal. Also, we continue our ATM program, having raised about $19 million so far this year. And in effect, we believe the market will turn during the second half due to positive fundamentals, plus a possible demand rebound as lockdown measures abate and normality returns. And now I'll return the call back to Nikos.
spk05: Thank you very much and looking forward for more positive results next time. And with that, we would like to open the floor for any questions.
spk00: Thank you very much, sir. Ladies and gentlemen, if you wish to ask a question, please press star 1 on your telephone keypad and wait for your name to be announced. Our first question for today is from Randy Givens from Jefferies. Please go ahead.
spk06: Howdy, gentlemen. How's it going?
spk05: Very good. I think it's time for you to come down to Greece again. I agree.
spk06: I agree. Hopefully sooner rather than later.
spk05: We all hope. We all hope. We're all vaccinated here with our Johnson & Johnson and ready to mingle with our good clients and friends. Thank you.
spk06: Good deal. Well, I'll be there. A few questions for me. First, I guess just the most timely question. You know, this report in the news this morning, you're partnering with Equinor for four dual-fuel Aframex new buildings. Can you comment on that story or maybe provide some additional details with these Equinor assets?
spk05: Well, as you know, TEN's model depends on partnering with first-class clients. We are in the process of discussing, not only with Equinor, but with other clients for the step forward. Our industry is changing. The structure of the industry is changing. We had the biggest change back in the 90s when the OPA 90 changed the actual hull of the vessel. I think we are in the process of the changing of the actual... compunction of the ships right now and this is something we are discussing with clients. There's not much details we can say but for us we are very proud to have the expertise of our clients together with our team in looking for the future even more environmentally friendly vessels out there and always with an accretive transaction in mind.
spk06: And then with those kind of accretive transactions, segueing to your LNG charters and those counterparties, can you give a little more color on those three LNG contracts in terms of durations, rates, counterparties?
spk05: Well, the star of the energy market for the last, I would say, two quarters so far have been the LNGs. So we were very lucky and very well placed, and thanks to the efforts of our in-house team, we were able to actually deliver the vessels back to back from their previous employments to their new employments without any loss of a single day. So I think that this is very good. And when we're talking about what LNG is, you know that the figures are significantly high. So that was very important. Also, passing the survey is very on budget of those vessels. And they range from, I would say, an average of two years to a minimum then of five years for the other employments, with options that takes it up to the eight-year period. Got it.
spk06: Okay. And then I guess looking at kind of just further fleet renewal efforts and maybe on the sales side, right, you've taken around or you still have around 15 tankers all around 15 years of age. So is the plan to kind of divest those as you're building these new kind of dual fuel vessels?
spk05: Yes. I mean, this is the next. We will be phasing out these very good quality ships. I think perhaps we must be one of the very few companies that we have maintained a very firm belief in where we build our assets. And the majority of our assets have been built in places like Korea and Japan. And I think this is where we are maintaining right now our position. So we are looking to replace those very good assets with assets that are built in sister yards. Got it.
spk06: I guess last question. 2Q is now pretty much literally complete. You know, all the other peers give kind of quarter-to-date rate guidance. Can you provide that for 2Q and just try to get a sense of how that compares to 1Q?
spk05: Well, Q1 was a difficult quarter, but I think as Paul very elegantly said, I think it was a modest loss managed because of the company's strategy of time charters. in the vessels. So it was a significantly better quarter than the fourth quarter. And I believe that the second quarter, with the help of our LNG input, which is going to be significant, will be a better quarter than the one that we just reported. So I think that's as much as I can say. And I think, as George and the chairman said, we are looking at better days ahead. We have a strong indication from charters that are out there looking for long-term employment of vessels. The supply side is the lowest in recent memory, since the early 90s. So I think the light at the end of the tunnel is appearing slowly, but steadily. Got it.
spk06: All right. Well, that's it for me. I'll turn it over. Thank you so much. Thank you.
spk00: Thank you. Our next question is from Magnus Furr from HC Wainwright. Please go ahead. Your line's open.
spk07: Yeah, good afternoon. Just a couple questions on... you know, the appetite among oil companies for time shorter contracts. I mean, the trading firms have been pretty busy securing tonnage over the last couple of months. You know, rates are still very low. But have you seen much of a change from the oil companies as far as the appetite on maybe taking in more tonnage? And I don't know, how do you structure these contracts with rates still depressed?
spk05: Well, I think from what George described earlier, we actually played defense, as you say, in the United States. So when a lot of our renewals came in, we decided not to go for long-term charters at this stage. The appetite is there. There are companies that are looking for, I would say, low-balling numbers. But we are in discussion for anyone who is seriously on a minimum and a profit share. So there are quite a few of those businesses that we are discussing. And we are seeing signs that, you know, people have belief in the market. We've seen companies like Frontline making investments in... in VLCCs recently, and not only. So I think it is a good sign. And we're seeing also pooling. I mean, we are big supporters of pools. We strongly believe that pools are the best way of consolidation. It actually allows you to keep your interest on your ship, run your ship properly, maintain. I mean, as George reported or Paul reported, we were able... to control our expenses, have another reduction of 6 or 7% in different circumstances, which we are proud of. We went down from 7,900 to 7,400 in OPEX in a difficult time when COVID restrictions put a lot of... So I think, you know, we are thankful to our men and women on the ships and the officers that are being able to do so. And then through consolidation we are able to have a better and block negotiation with our clients. All right.
spk07: Thank you. And just going back to the prior questions regarding selling some of these older ships, I mean, these ships are typically the ones that will have the best rebound in asset values if the market recovers, and they could generate significant cash flow as well. How do you balance that, having these very well-maintained ships that you know very well, and keeping them and maybe capturing some of the market recovery going forward versus staying compliant with new regulations?
spk05: Well, Magnus, we are doing transactions, trying to have some imagination in what we do. So one of the ways that you can achieve exactly what you described is with some sales and leaseback transactions that, as you know, are something that the company has always believed in. So in that sense, you are able to sell the vessel forward at a premium or a significant premium for her age. but then maintain exactly what you said, use for another three years of here trying to capture the upside. So I think you hit the nail on the head with your point.
spk07: All right, good, good. I just want one more question as far as the dry docking. You brought back some dry dockings in 1Q. Refresh my memory. What's your plans now for 2Q? I'm sorry, 3Q. We're basically done with 2Q. So what can you bring forward in 3Q? We're doing another four.
spk05: We're doing another four bringing forward. We're doing the Thomas, the Elias. We're bringing ships that are due early 2022. We're doing them now because they are in the right location at the right time. So I think it's better to use the summer lull and have them ready as we go forward in the fourth quarter. So I think you can say another four ships, but I would say efficient dry dockings when there is the right area.
spk07: And just one last question, if I may. The cash balance dropped quite a bit. It's a little bit below your comfort level, even though it's above my comfort level. Do you guys feel comfortable with current cash position, even though it's come down a little bit?
spk05: Thanks to the efforts of our chairman and the team here, you will find out in the third quarter it has rebounded significantly. Very good. Thank you. Okay. Very good.
spk00: As a reminder, if there are any further questions, please press star 1 on your telephone keypad. There are no further questions that are waiting at this time. I'll hand the call back to Nikolaos Takos, CEO. Please go ahead.
spk05: Well, before I ask our chairman to say his last wise words, I would like again to state that we are in a process of a structural change in our industry. The structural change, as a company, we faced it again back in the early 90s with the OPA90. At the time, within four years, we transformed the company from a single, single company to a fully double, double company with the help of everybody. That was a big change in the hull design of the ship. I would say the biggest hull change since the inception of shipping, where you have Today it looks like it's a usual thing, but at the time there was a lot of discussion about its safety and about how efficient and safe it would have been going forward. But it has been proved that it has reduced pollution by 99.9 percent. And having Mr. Mitropoulos here, who was in the forefront of those discussions at the time, I think it was a very important move. And thank you very much. The same team, our environmental and operation team, is now in discussion with our clients for the change in the engine design, which is the next step. So I think the industry took the environmental changes of the hull in the early 90s for the OPA90, and we are in the same process. And the company is there with exactly the same enthusiasm. much, much stronger company with the support of our clients in discussing with our clients over the next step. And I think one of your questions earlier about discussions with clients, yes, that's what we do. We sit around with them and we try to find what will be the ship of the future, and hopefully we can do it by making some good returns in the meantime. And with that, I will ask... Thank you. Thank you,
spk01: All the best in the next quarters and congratulations for the proactive management that has positioned TEN where it is, ready to benefit from market recovery. Well done. Thank you. Thank you to all.
spk00: Ladies and gentlemen, that does conclude the call for today. Thank you everyone for joining. You may now disconnect.
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