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spk01: Thank you for standing by, ladies and gentlemen, and welcome to the Chakros Energy Navigation Conference call on the fourth quarter 2021 financial results. We have with us Mr. Takis Arogoglu, Chairman of the Board, Mr. Nicolas Chakros, President and CEO, Mr. Paul Daron, Chief Financial Officer, and 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 it over to the President of Chakros Energy Navigation. Can you hear us? No, it's not on this here.
spk07: Thank you very much, and good morning. Good morning. Good morning. and we will have a copy for you right away we will send you a copy 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.temn.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 move to the next or to the previous slide on your own. At this time, I would like to read the same article 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 Report Act of 1995. The investors are concerned that such forward-looking statements involve risks and uncertainties, which may affect tax, business prospects, and results of operations. And at this moment, I would like to pass the floor on to Mr. Takisarapoglou, the Chairman of the Board of Chakras Energy Navigation,
spk06: Please go ahead, Mr. Alato. Thank you, Nicolas. Good morning and good afternoon to all. Thank you for joining our call today. The results we published today demonstrate the continued operating resilience of TEN in historically very weak markets that prevailed throughout 2021, and operating performance clearly far superior to our competition. This allows us to continue our confident path with great conviction and propose a dividend, as we have done since inception, in an uninterrupted fashion. We are currently experiencing very firm market conditions which are not based on fundamentals. This is clearly an event-driven situation generated by both a surging post-pandemic economy and its inflationary and supply chain repercussions, as well as by the admittedly quite sad war and humanitarian disaster in the Ukraine affecting the world in more ways than one. It is still too early to say whether the current recovery is transitory and for how long, or to any extent more permanent in nature. But in any case, we consider it as a welcome bridge towards the long-awaited recovery in the tanker market based on strong industry fundamentals. For this, TEN, through its well-structured operating model, is perfectly positioned to benefit from, as it is indeed benefiting from already, reflected and acknowledged, as you are all aware, by the recent rise in the stock price. So congratulations once again for Nikos Tsarkos and his team. and best wishes for continued success in 2022. And thanks again. And over to you, Nikos Stakos. Thank you.
spk07: Nikos Stakos Thank you very much. And good morning to all of you from New York City, where actually we had the opportunity to be on the New York Stock Exchange and celebrate our 20th anniversary as a quoted company Here, 20 years of continuous growth, as the chairman said, and continuous dividend payments. However, looking back in 2021, which was the worst tanker rate here in recent memory, more than 30 years ago we had similar rates. We started the new year with enthusiasm, looking forward for a post-COVID opening up environment that makes transportation, like other services, glorious. And once we were starting feeling the positive changes, we had the unprecedented events of February, end of February, with the Russian invasion. So we started the last two years, every morning we were starting by making sure how to protect our seafarers and our crew and our vessels. I think we had a small break of a couple of weeks, and now we're there trying to protect again our seafarers, our crew, our vessels from the difficult situations faced within the...after the Russian invasion. But as the chairman said, TEN is a company built on difficult situations, so we have that is able to pass through the hurdles and come out stronger. Counting this is since inception, this is our fifth crisis, starting with the Paris crisis in 96, the events following the 9-11, then, of course, the Levan crisis, COVID, and without interruption the Russian invasion. But we keep a steady hand on the wheel. navigate the waves. And I think good seafarers are only becoming good when they have to go through storms. And this is what we do. Right now we are enjoying what we have prepared the company with, with 40 vessels out of our 71 on spot-on-profit setting arrangements. Every single one thousand dollars of spot market exposure, of increase, is seven cents down to our bottom line. So we are experiencing the best rates since 2008 as we speak. So although none of us is happy with what is happening, actually as our CEO we all pray and hope that the atrocities will stop as fast as possible and the world will go to an open state, because shipping actually flourishes when we have open seas and open borders. And we expect with the fundamentals that are out there, with less than 8 percent across the board of the world, a new building replacement program with, you know, many vessels exceeding the 15th or the 20th year anniversary and outnumbering by the first time vastly the additions to enjoy hopefully a prosperous and peaceful couple of years going forward. But in the meantime, we have to navigate with difficulty, and that's what we do. We feel confident to maintain our dividend, and hopefully if things continue to have an increased dividend in the second half of the year. And with that, I will ask George Sarov to give us a quick update. Thank you, Nikos, and good morning to all of you joining our earnings call today. Let's go to the slides of our presentation.
spk05: Starting with slide 3, we see that since inception in 1993 we have faced four major crises. counter-cyclical operating model that targets growth at market lows has come out stronger. And of course, it's not an exception this time. While we navigated the company through the challenges the COVID pandemic has created, we have managed to grow and prepare the company for its next phase. We announced new billing contracts for four dual-fuel LNG In the next slide, we see the Proforma fleet as its current employment profile. We have a combination of vessels in fixed time charters and in flexible employment contracts, which means time charters with profit sharing, contracts of affrayments, and spot trading vessels that capture the market upside. starters, while the light blue and red-colored vessels, or about 61 percent of the fleet currently in the water, have exposure in the market's upside. This means that TEN is well positioned to capture the positive tanker market fundamentals. In fact, we already witnessed better spot rates as the invasion of Russia and Ukraine, a tragic event, and the trade dislocation that it created has fueled spot rates to high levels. We took advantage of the low freight market environment in the last quarter and last year to bring forward a number of scheduled special surveys repairs to have these vessels ready once the freight market for tankers rebounds. Out of 21 special surveys last year, 12 were for vessels that were brought forward. Fleet modernity is a key element of our operating model. During last year, we sold three of our older tankers, and as we mentioned, we replaced them with environmental footprints, as these LNG dual-fuel-powered vessels are the first such investments in the company's history. We are also building one more DP-2 shuttle tanker for delivery at the end of the second quarter of this year. All remaining new buildings are coming with long-term employment attached. We also took delivery in January of our newest The vessel entered immediately a five-year time charter that is expected to make contribution to our bottom line, as the LNG sector is currently very strong. Inclusive of the above charters, 10's minimum fixed revenue has a backlog that exceeds 1 billion. Moving into slide 5, we see that the left side presents the all-in break-even cost for the various vessel types that we operate in 10. As you can see, we continue to have a low-cost base. And during the year, the revenues generated from the time charter contracts was again sufficient to cover the company's cash expenses, paying for the vessel's OPEX, overheads, chartering costs, and loan interest. We must also highlight the purchasing power of Chaco's Columbia Ship Management and the continuous cost-controlled efforts by management to maintain a low OPEX average for the fleet, while keeping the high fleet utilization rate quarter after quarter. Despite 21 special surveys during last year, we achieved an overall 92.6% utilization for the fleet. And thanks to the profit-sharing element, a cornerstone of 10th chartering strategy, for every $1,000 per day increase in spot rates, we have a positive $0.33 impact in annual EPS based on the number of 10 vessels that currently have exposure to spot rates. Debt reduction is an integral part of the company's capital allocation, as we see in slide 6. The company's debt peaked in December of 2016. Since then, we have repaid 380 million of debt and repurchased 100 million in two series of step-up preferred shares we had outstanding. In slide 7, we see that in addition to paying down debt, dividend continuity is important for common shareholders and management. Ten has always paid the dividend, irrespective of the market cyclicality. About half a billion in dividend payments have been distributed since the New York Stock Exchange listing in 2002. The next dividend of 10 cents per share will be paid in June. Exact details of the payment will be announced during the company's first quarter 22 earnings call. We had 6.8 million barrels per day increase last year as a result of the vaccination rollouts and gradual return of mobility and economic activity to levels close to the pre-pandemic oil demand levels. Despite current headwinds, oil demand is expected to rise by another 2 million barrels in 2022, which means that based on the current forecast, we will be at the pre-pandemic oil demand levels. sometimes during the second half of the year or latest by year end. On the global supply front, OPEC Plus producers continue to manage supply with discipline. Some countries have not been able to meet their monthly quotas and are underproducing. Global oil stocks continue to fall and are now 300 million barrels below the five-year average. Non-OPEC production is set to rise in 2022. As a result of the war in Ukraine, we had a second from the Strategic Petroleum Reserves of the United States and OECD member countries for the next six months in an effort to lower energy prices and counterbalance the effect the war has created in the energy markets. With oil demand recovering, let us look at the forecast for supply of tankers in Slide 9. The order book stands at around 5.6 percent, or 285 tankers over the next three years, The lowest it has been in over 20 years. At the same time, a big part of the fleet is over 15 years. 30% of the fleet, or in excess of 1,500 tankers. Almost 400 tankers, or 7% of the fleet, are currently over 20 years. Slide 10, as the next slide shows, 2018 was one of the highest scrapping years of records since, with 22 million deadweight tons removed from the market. Last year we've seen acceleration of scrapping from the second half and ended with almost 15 million deadweight tons removed. Scrap prices continue to be at very high levels. With more environmental regulations coming, discussions for alternative fuels, and 7.2% of the global fleet above 20 years, we expect scrapping activity to remain high and act as a balancing factor for fleet supply going forward. So to summarize, oil demand, the recovery continues. Oil supply, we see monthly production increases by OPEC. Non-OPEC production is set to increase in 2022, bringing more cargo to the market at the time when global oil stocks are below the five-year levels and demand is increasing towards the pre-COVID levels. Recent geopolitical events in Ukraine and the sanctions that followed for the large numbers of Russian state oil and privately held tankers to be excluded from the market as oil majors and oil traders boycotted these vessels, creating a supply squeeze in the Aframax and Shrewsmax sectors. As rates firm, we are seeing increased activity across the tanker board. Order book, supply of tankers. The order book to current fleet ratio is at historical low levels. A big part of the fleet is And if you look generally at ten, we have a modern fleet, which is well positioned to capture the expected recovery of the market. We continue to reduce debt. We have a strong balance sheet, strong banking relationships that allow the company to take advantage of the opportunities that will be presented. And with that, I will ask Paul to walk you through the financial highlights of the fourth quarter and the year. Hi, this is Paul. Can you hear me?
spk04: Yes, we can hear you. Okay, well, I'll continue from where we lost George. change in fortunes in the tanker market, including a higher TCE and a 6% increase in revenue. But also in quarter four, management of 10 concluded, based on cash flow projections, that seven of its oldest vessels had incurred non-cash impairment charges despite their excellent conditions. This is also to our benefit. These charges total $86.4 million, a significant amount. But by incurring these charges, the vessel values will more accurately reflect current fair market values. In addition, quarterly depreciation charges henceforth will be reduced by $2.3 million in each of the following quarters. The quarter four financials were actually much in line with the three recent quarters. And excluding the impairments resulted in a modest loss of just $14.9 million. In a difficult market, there was a 6% increase, as I have said, in revenue compared to the previous quarter fall, with total revenue reaching $139 million. And although annual revenue dipped from the prior year, Penn still achieved over half a billion dollars revenue in the year with almost full vessel employment, strongly indicating an improving market that we now see gathering pace. While tankers operating in the spot market struggled to cover daily OPEX, our average TCE was nearly $17,000 per day despite six vessels dry docking in quarter four. Even with dry dockings and soaring bunker prices, total expenses increased by a manageable 9% after excluding current and prior year impairments. Vessel operating expenses fell by 3%, keeping daily operating expenses per ship at $7,900, helped by a stronger dollar, while GNA remained at $7.2 million. our daily overheads remaining at a low $1,200 per vessel. Other expenses remained relatively stable compared to the prior quarter four, including interest and finance costs, remaining at about $9 million in both fourth quarters, as interest rates declined and positive bunker hedges helped provide some balance against the higher bunker costs. Generating adequate EBITDA and preserving cash reserves over the past year, and especially in recent quarters, has been a challenge given market conditions, although we managed to reduce debt in the year by $130 million and ensured financing for the LNG carrier and for the forthcoming shuttle tanker and recent AfriMax orders. All of these activities have put extra pressure on our liquidity, However, thanks to our time charter strategy and to refinancing by our banks, we successfully managed our operational cash flow and fully met our debt service obligations. And to date this year, we have bolstered our cash reserves to more healthy levels, helped by a promising market takeoff, soon to be reinforced by a tanker sale, with the prospect of further And at this point, I finish my comments. Go back to Nikos.
spk07: Thank you. Thank you, Paul. Thank you for giving us a very, I would say, rosy for the future financial position that we always maintain. As you know, TEN has always kept a strong balance through thick and thin. And if you go to the last 20 years, We are very proud of it, very proud of our banking relationships, very proud of the very low spread that we have charged for our debt when we grow the company with accretive transactions. And this has been done by consistency, as we have a continuous dividend payment. Perhaps we are one of the very few companies in our peer group that has never, ever our banks for any sort of renegotiation, and I think this is appreciated in a huge way. But when we hear that spreads are going higher, when we hear that people, other colleagues of ours, are facing difficulties in finding finance, our Treasury and Finance Department out of London has a queue of, you know, very supportive associate banks to help us in our growth and in our projects. And thank you. Thank you for accomplishing this. And hopefully, as we go forward, since we have navigated the worst part of the storm, I think we will be able now to pay more time and dividend for our common shareholders also, together, of course, with our preferreds that have outperformed the market in a very big way. And with this, I would like to open the floor for any questions that we could be helpful to answer.
spk01: Thank you. We will now begin the question and answer session. If you wish to ask a question, please press star and 1 on your telephone keypad and wait for your name to be announced. If you want to restore your question, please press star and 2. And the first question comes from Christopher Robinson from Jefferies. Please go ahead, sir. Your line is now open.
spk02: Male Speaker 1 Hello, gentlemen. Thanks for taking our questions.
spk07: Male Speaker 2 Thank you, and congratulations.
spk02: Male Speaker 1 Thank you. So, I wanted to ask about the ATM activity during 4Q. Can you comment on how much was raised from the common share issuance versus the preferreds? And then, any issuances done year-to-date, what remains under the ATM, and what would trigger any further issuances there?
spk07: Well, yes, as you see from the record, I think we had about 20 million in a month, in the fourth quarter. And I think the majority of that is from common shares. A very small part of it has gone with the preferreds. Okay.
spk02: And then any issuance is done year-to-date during 2022?
spk07: I think, yes, similar issuance, which we will be reporting in a couple of weeks with our results.
spk02: Okay. In terms of the four dual-fuel AfriMax new builds on order, can you talk about either the contract And those are still scheduled for delivery in 2023 through 2024. And can you talk about kind of the cadence of delivery there? Yes.
spk07: I mean, this is... Thank you for posting this question, because it's a very important part of our strategy going forward. Back in 1993, when we were almost 30 years ago, when we started that, our aim was... to end up the 10th century, by the beginning of 2000, to be able to have a full double-double flip. And that was a, if you remember, a double-half flip at the time, the new legislation for the Europa 90. We were able to accomplish this in a timely mode, and when we entered the New York Stock Exchange Well, now we're undergoing a very similar exercise, although we're a bit older, but I think wider, I hope. So what we would like to do is by the end of this decade, by 2030, to have the vast majority, if not all, of our vessels of the future technology of energy carriers. be the dual fuel, which could be either the alternative fuel could be gas or ethanol going forward. And, of course, hydrogen is in the way back of our mind, and our technical and environmental committees are working on designs like that together with our long-term CPRs. So we look at this initial five- to ten-year contract. and very experienced end user, the Equinor, to build those ships and start a process that we would like by 2030 to have a complete fleet. We are looking at returns. We look at it as a return on equity of those things, so we look at them on the high-to-mid Our main always target is in excess of 15%, but when we're doing new high-quality projects, we will do anything between 10% and 15%. Okay, got it. You mentioned...
spk02: controlling OPEX cost inflation. So last year, you know, the OPEX story was negatively impacted throughout the industry from COVID-related cost pressures. Do you see that aspect improving this year? And if so, where are the current cost pressures coming from in terms of expenses?
spk07: Well, as I think as George, our COO, mentioned, we would like to thank starting for all our seafarers on board, because they went through a very difficult 2021 and 2020, having to spend numerous months extending the sea service to help the company on board the ships. And in such a different environment, we were able to reduce operating expenses. I think this is really something that the TACOS operating field We would have to thank them, because they really were able to achieve a task of reducing expenses in an environment of increased, as you see, inflation by almost in excess of 33 percent over the year. And that, by bringing...we also included there half a dozen at least of specials that we brought forward in order to have those ready to date. the very high rates that we are earning, and also many of dislocation expenses in which we have actually to navigate vessels, even VNCCs, to places like the Philippines to change the crew. So, with all that in mind, we were able to reduce expenses, and we want to thank the seafarers and the management of the Chakros technical team for achieving this for us. Going forward, of course, we are looking at an inflationary environment. However, looking at the weak euro, I think this balances out this for us. As you know, the majority of our expenses are European, who will pay in euro. And having a weak euro and a stronger dollar will help balance the inflationary trends. So I do not foresee, other than the banker expenses, in which we are hitting a significant part of them, an immediate negative effect for the first six months. Great.
spk02: Thanks for that color there. I'll hop back in the queue. Appreciate the time.
spk07: Thank you.
spk01: Thank you. And the next question comes from the line of Magnus Veer from HS Weinreich. Please ask your question. Your line is now open. We have just lost the line. If you wish to ask a question, please press star and 1 on your telephone keypad. And the next question comes from the line of Magna Sphere. One second, please.
spk03: Yes, good morning, Nick, and Team Chakos. Can you hear me?
spk07: Morning to Houston.
spk03: Hi. Very good. Just a curious question on the Green Fleet initiative. It sounds like you're defining the Green Fleet as dual-fueled. I mean, you do have some eco-ships in your fleet, but it's about 42 vessels. fully dual-fuel fleet. How do you, from a capital allocation standpoint, how do you go about financing this? Should we assume long-term contracts or just selling old assets and replacing them when you, given that your stock, you know, is trading at below NAV?
spk07: Well, we hope by the time we finish the roadshow to the U.S. to be at NAV. I'm only joking, but thank you for your question. I think we are doing these transactions because it sounds, for us sitting around the table and just talking about green ships, it sounds more simple. It's a huge technical task. You very rightly say that we have at least half of our fleet is already of the eco design and our technical team and environmental committee is doing a lot to actually implement from January 23 the new legislation that will reduce the footprint even of our own ships and bring them to a much more environmentally friendly circumstances to be able to navigate way under the legislative tasks that we are facing. And by replacing our fleet, we would only do it together with end users, at least for the first part. After we have a dozen fleets of the dual-tool technology, a dozen vessels, and that will make us comfortable operating them, then we would be able to start building ships even without them going. So it's not so much the risk. The financial risk is what we want also to take care of is the technical risk that we are together with big major oil companies are doing the right thing for the right period and for the years to come.
spk03: You know, Equinor seemed to be on the forefront of this. Are you having other conversations, you know, with other oil companies? And have you seen some change here over the last year as far as in the appetite for, you know, financing these through long-term contracts?
spk07: Yes, I think we're seeing also European and American companies at least have offers to build another 10 vessels for two. similar companies with 7 to 15-year employment profiles.
spk03: All right. Very good. Just one last question. You know, rates have been, you know, very volatile here over the last month. Can you talk a little bit about the first quarter, what you've seen so far, versus end of March, the fourth quarter?
spk07: Well, I think for a change and I think with us taking care of all the, I would say, all the issues, impairments and non-cash items in 2021, I think we will be returning to a significant profit in the first quarter. And if things continue the way they are today, in an even better profit for the first six months. And, of course, we're still in the middle for the beginning of the second quarter, but things, I mean, rates, as you know the rate, it's not a secret, are quite significant from the Afro-Marxist to the product carriers and the Swiss-Marxist, all over the, you know, regardless of the Russian crisis, regardless of Russian location rate, the whole market is reacting very positive. So we believe that this could be the game-changer that, you know, you and I and the rest of the analysts, we've been talking and the rest of our peer group for the last 18 months.
spk03: Right. And, I mean, the spot rates have moved up here. Would this be a time where your clients, the oil companies, would try to lock in some vessels maybe at higher rates, but I mean, we still have some, you know, some tonnage out there, you know, but do you see an appetite for time charters improving?
spk07: There is, I have to say, a very large appetite of first-class charters and, of course, traders out there trying not to lose the boat, literally, in this case. You know, they were offering different rates in January, 15 percent higher in February, higher in March, even higher now. And I think it is getting to a level that if we see significant returns, we might lock a couple of chips. We have a very large portfolio to be able to take some on the spot and some on longer
spk03: That's all I had. Thanks for taking my questions. Thank you.
spk01: Thank you. May I just remind you, if you wish to ask a question, please press star and one on your telephone keypad.
spk07: Well, I don't see we have any more questions. And I would ask if our chairman will give us his closing remarks. And we want to wish everybody a happy Easter from here, from New York. And looking forward to, for all of us, to enjoy a peaceful holiday period this week and the next week in Greece. And hopefully we will be able to be reporting higher dividends and higher returns in our pre-Posedonia goal. And hopefully all is going to be settled, hopefully in a peaceful way. And with that, I will ask our chairman, Takis Aramonou, for his closing remarks.
spk06: Thank you, Nikos. I have nothing else to say. I just wish you... Good luck and safe travels, and hope you have a very productive roadshow in New York. Goodbye from me.
spk07: Thank you very much.
spk03: Thank you, sir. Thank you.
spk01: Thank you. That does conclude our conference today. Thank you for participating. You may all disconnect.
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