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.
spk06: Thank you for standing by, ladies and gentlemen, and welcome to SACOS Energy Navigation Conference call on the first quarter 2023 financial results. We have with us Mr. Takis Arapaglu, Chairman of the Board, Dr. Nicholas SACOS, President and CEO, Mr. Paul Durham, Chief Financial Officer, and Mr. George Chiroglu, 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 Bernoses, President of Capital Link Investor Relations Advisor with SACOS Energy Navigation. Please go ahead, sir.
spk04: Thank you very much, and good morning to all of our participants. I am Nicolas Bernoulli of Capitalink, Investor Relations Advisor to Tracos Energy Navigation. This morning, the company publicly released its financial results for the first quarter ended March 31, 2023. In case we do not have a copy of today's earnings release, please call us at 212-661-7566. or email us at ten, T-E-N, 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.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 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 slide and the slide presentation contain certain forward-looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties which may affect FEMS business prospects and results of operations. And before passing the floor to the chairman, I would like to highlight that, as mentioned in the press release today, TEN celebrates 30 years as a public company. I'd like to extend my own congratulations to Dr. Tsarkos and the entire team. And the company is kicking off 2023 with a record quarter in terms of performance and results. And at this moment, I would like to pass the floor to Mr. Takis Arapoglou, the chairman of Tsakos Energy Navigation. Please go ahead, Mr. Arapoglou.
spk05: Thank you. Thank you, Nicolas. Hello and welcome, everyone, and thank you for joining us on our call today. I must congratulate management for an extraordinary set of record first quarter results. and stellar operational performance, and also congratulate TEN as a whole for celebrating 30 years as a public company, 30 years of uninterrupted growth. So many happy returns to TEN. We continue to benefit from the prevailing solid market fundamentals, building healthy cash reserves, which allows us to maintain our policy of redeeming expensive preferred issues when we can, steadily reducing debt, and paying seriously increased dividends, in this year's case a dividend 140 percent higher than in 2022. Subject to the market continuation of this firm market, the board may consider paying an extraordinary dividend during 2023. Over and above the already announced annual common dividend of $0.60 per share. At the same time, we take advantage of the prevailing attractive charter rates, locking in long-term employment for our vessels, resulting in over $1.6 billion of future contracted revenues over the next three years. which, of course, secures a high and sustainable profitable performance. Our vessels operating in spot are taking advantage of the high rates in the market, as is the case with our vessels benefiting from profit-sharing arrangements. All this, the combination of all this, puts us in a position to comfortably continue, as always, to consider new strategic accretive investment divestment opportunities as and when these may arise, in order to grow TEN further, always in a measured and prudent way and for the benefit of our shareholders. So congratulations again to management and employees of TEN, and best wishes for another 30 years of successes. I'll now pass the floor on to our CEO and President, Nicos Sakos. Thank you.
spk02: Thank you, Chairman. Thank you, Nicholas. And good morning, good afternoon to everybody. It's with great pride that we are celebrating our 30th anniversary, the year that the company was established, started as a small garage type of startup with four vessels to where it has been today. And also we're celebrating it together with a lot of friends, a lot of colleagues who have been with us all the way. a lot of new colleagues that are cutting the torch now, and of course we're even happier that we can report record earnings on our 30th anniversary. Like last year, which was our 20th continuous year on the New York Stock Exchange, we also We had the luck to celebrate a record year and we hope that this year is going to be another record year. For us 10 means personally a lot. Also for me and the family. It's a very big part of our lives. How big I will not reveal because I will give out my age, which most of you know. But I can say that very soon it's going to be more than half of my life in dealing with a company that we all enjoy. and our shareholders. It's really a scary thought to think of this. But of course it's not only the longevity of the company, it marks a lot of milestones for us going forward. The year that we actually started our quotation, the New York Stock Exchange, we had the arrival of our son. He has proven a great investment so far. and even a better investment in 2004, the order of our first LNG together with the arrival of our two daughters. And this year, a record year, and they're all out of the house and in colleges around the world. So it's been a long process, but it has been an exciting process building the company with friends all over the world. The way we see the future... is that we are in a period that I have never experienced in my, as I mentioned, 30 years of working life in which the order book has never been so dry, to use that expression. Never in the last 30 years we've seen a percentage of 3 or 4% of the world fleet being built. Some categories are really completely unattainable to compete with the demand that is coming. We're seeing demand coming back after the couple of long COVID years, more ton miles because of the war, occasional closures of canal. I mean, as you know, we have delays many times in the Bosporus, mainly in the winter. that have an effect on the market. Right now we're seeing a very strange situation in the Panama Canal where because of drought there's a significant need of dredging and a big number of our larger ships including our LNGs, not only ours, big containers either have to wait for long queues or they have to decide to do additional long ton miles going around around South America in order to get to the other side. So every small... Right now the market is so balanced that every small detail makes the market even stronger. So this is how we are looking at a very good... As far as supply and demand situation, we're seeing more refill of strategic reserves around the world. The driving season, and I hope all of our good friends will take their time and enjoy driving around Target yesterday in the U.S. and in other parts of the world. So with that, I would say that we believe that this market has legs to go forward. And talking about forward, I would ask George to give us a little bit, a quick, a little bit of the past.
spk03: Very good. Thank you very much, Nikos. Good morning to all of you joining our earnings. First of all, we continue to experience the largest change in trade flows to ongoing crude and oil product movements as a result of the war and Western sanctions on Russian seaborne oil. As the war in Ukraine continues, these changes appear to be permanent. Europe before the war was the biggest client of Russian oil, but since the war South America, Guyana and the Middle East, creating a positive ton-mile multiplier effect for tanker demand and freight rates. At the same time, tanker new buildings are at an all-time low, with new orders being less than 5% of the existing fleet. Many yards are now booking orders after the end of 2025. And at the same time, global oil demand is growing, based on the latest monthly forecast from the oil demand is expected to grow on average by 2.2 million barrels per day. If or when realized, it will be an all-time record at 102 million barrels per day. Most of the demand growth is growing. without the tragic war were positive for our industry. The Western sanctions and price cap imposed on Russian seaborne oil served as an additional catalyst to propel In 2019, the company has bought back and retired 188 million of preferred shares, saving preferred annual dividend payments of approximately 16.1 million per year. In the next slide, we see the fleet and its current fleet employment. We have an operational fleet of 58 vessels, with 31 out of the 58, or 53% of the fleet, in the water, Since the start of the year, we have renewed and or extended 15 of our tankers to time charters with higher fixed time charter rates or higher minimum base rates and higher profit sharing schemes. Fleet modernity is a key element of our operating model. We sold, during the first quarter of the year, eight tankers, six 2005 built MRs and two 2006 built anti-size tankers. management is exploring the investment opportunities as asset prices for quality second-hand tonnage Like six. contribute to the profitability of the company. Fleet utilization in the first quarter of 23 amounted to 96.4%, reflecting efficient technical management and the low number of scheduled dry docking during the period. Thanks to the profit-sharing element for every $1,000 per day increase in spot rates, we have a positive impact of efficiency. Slide nine. It translates through the dividend distribution, which is in addition to paying down debt, as dividend continuity is important for the common shareholders and management. Ten has always paid the dividend, irrespective of the market cycle. Thirty cents will be paid on June 15, and another thirty cents will be paid in December, at a date that will be announced later in the year in question. since the listing in 2002. The market continues... As global oil demand continues to grow, let's look at the forecast for the supply of tanker. The order book stands at less than 5% over the next three years, which is the lowest it has been in the last 30 years. At the same time, a big part of the fleet is over 15 years, and we currently have almost 11% of the fleet that is over 20 years. The last slide is the slide that shows the scrapping activity since 2018. And with that, I will ask Paul to walk you through the financial highlights of the first quarter. Paul? Thank you, Geoff.
spk01: Well, in the first quarter, the company achieved a net income of $96 million. amounted to $261 million, an increase of 75% over the prior year that contributed $236 million EBITDA compared to only $42 million in the prior quarter one. Wildlife time charters generated $136 million and spot freight provided $125 million. This clearly indicates that the tanker market had considerable strengths in the opening weeks of the year, and even now, despite demand concerns that George has pointed out with respect to potential cuts, the sale of the new vessels of our vessels in the new year, as mentioned in the press release, also generated extra cash, proving asset values are also buoyant. In all, The first quarter, including vessel sales, resulted in net income of $177 million, a record net income for the first quarter. Our total vessel utilization reached maximum employment, helped by having just two vessels in dry dock. Our series maxes and afro maxes participated in a market that provided high rates of witzes. together with our smaller vessels, led to a daily average TCE of over $42,000 per vessel in quarter one, double that in the prior quarter one. OPEX increased, but much was due to inflationary factors and because we used a large part of our cash allowing a welcome reduction to our outstanding preferred shares that will have a positive impact on our bottom line through many quarters in the future. As a result of bringing our quarter one operations into readiness, our fleet, as always, is in a perfect state to serve our customers. So there we have it, and that's a fairly calm quarter one.
spk02: Well, I hope we'll do As well or even better for the next quarter, Paul? Yeah. Good. Thank you, Paul. Thank you, George. Sounds like the Beatles. Thank you, Paul. Thank you, George. And on that note, again, I would like to say that... The market fundamentals, the way we have placed the company, the strategy of always maintaining ships in the spot market, but also ships with high utilization that makes us always, even in difficult times, be able to have the propeller at least 96%. of the quarter has made the company be able to navigate, as you saw in the slide that George has left on the screen, even in difficult times, has always been able to pay a dividend, has always been able to grow, never had an issue. I guess we are one of the handful of companies that we have never, ever negotiated any of our loans or banking facilities. We have, I mean, We kept on paying and reducing significantly our debts. We picked at difficult times because the time to invest in ships is when the market is low. We have picked our debt at around 1.8 million back in 2016. Since then, we have not only reduced our debt, but at the same time grow our fleet. from internal cash flows, but also, as George said, we will be reducing by another $180 million and perhaps more our perpetuals. These are perpetual preferreds, so we don't have to reduce them, but I believe it's good housekeeping for us. It makes our balance simpler. And it saves at least $17 million straight from our bottom line on interest savings. In a period where interest rates have been growing around the inflationary world that we are living with. We took advantage of this market just in the first quarter. We have rechartered or new charters of 15 ships at significantly higher levels and for significant long periods of time, anything from 15 years down to two years. and that gives us a mix of business of 1.6 billion with an average duration of three and a half years, which is something that we know that going forward the company has secured paying all its obligations and grow even if the spot market goes under break-even. So this is the position we are in right now. And with this I would like to open the floor for all of us if you have any questions. Thank you.
spk06: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for your questions. questions come from the line of Omar Nocta with Jefferies. Please proceed with your questions.
spk07: Thank you. Hey, guys. Good afternoon. Thanks for the update. And, yeah, congratulations on yet another record-setting quarter and very strong performance. Just wanted to ask, maybe, you know, strategically and big picture about your talk that's going forward. the MR segment, you got out of those older vessels. And your investments here recently have tended to be much more within the shell tankers or in the crude Suez Max, Afro Max segment. And you've also got LNG. So just wanted to maybe think about or ask, when we think about SACOS in the future or going forward in terms of capital allocation, is it really maybe within these three buckets that you're looking to deploy SACOS? capital. It's either within shuttle tankers, it's within the size crude, and within, say, LNG. Is it those three buckets that make up the primary sort of long-term picture for the company?
spk02: Yes, thank you, and good morning. Well, these are high-end parts of the business that we have the internal expertise, as you know, and we're waiting for your visit. Don't wait for Posidonia to come visit us. The office is still running even without Posidonia. We have new developments mainly in our control procedures. new control stations for our ships. We'll be looking very forward to see you. You know, I mean, we run everything in-house. So for us, the more demanding the trades are, they give us a better return, but it's something we can handle internally. So we tend to focus to the high end of the business that is required by the major oil companies, but this does not exclude that we will look at... opportunities like the MR segment because we always like to have a participation in it. The last participation ended up being a very successful one when we actually built those ships back 18 years ago now. My God, we were all much younger if you look at the delivery pictures. It was, you know, we never expected that those ships would have such a good performance after 18 years and have proven to be one of our best returns over the years. However, it's true that we are focusing on the bigger sizes, shuttle tankers, LNGs, SWESMAX and VMCCs.
spk07: Great, thank you. Yeah, and maybe just on the two Swiss Max new buildings, the ones that are scrubber-fitted, you're having employment discussions on those two. How would you characterize those types of discussions? And what I mean is, are they project-style long-term charters similar to the dual-fuel Apermaxs you have or the shuttle tankers? Or are these more charters you're seeking to de-risk the new building investment?
spk02: Well, I think, you know, it is more what chapters want to secure a good quality operator with a long-term employment. So it is not so much on specific contracts, but all the major companies are looking to secure ships. There are very, very few ships out there right now. Very few of us understand or know what will be the next phase of the engines. Is it going to be dual fuel with ammonia, with LNG, with methanol? So there is a wait and see. So there is a lack of ships. And when ships of that quality in this, in the most, I would say, prestigious yards in the world are being built by a good operator, there are a lot in demand.
spk07: Got it. Thank you. And maybe just one final one for me. Just within, say, LNG, I wanted to ask kind of what you're seeing in that market, opportunities-wise. We've seen the spot market come off here recently, part of it's seasonality, part of it's pressure on LNG prices. But generally, we've seen the spot come off, but the term market appears... that it's much firmer. Just wanted to ask, kind of, if you can give some color in what you're seeing in the term charter market for LNG, and then also if you're seeing opportunities to go into new buildings there against long-term contracts.
spk02: Yeah, I think you're very right to say that I think the spot market right now is around the 50,000 down from 100,000 just six months ago. We have been, I guess, all the way... like you or ahead, and we have chartered our vessels out for very, very, very, perhaps for very long times at very profitable levels. So we actually jumped on the chartered long-term wagon sometime in the third, fourth quarter last year, and we have been able to secure 12 to 15-year employment on one of those ships at very accretive levels. another 10 to 11 year employment again with profit sharing arrangements on another, and a very good year extension on the third. So I think we're going to be, at least from our LNGs, we're going to be enjoying locking in the high end of the business. I expect that as more as the turbine vessels are coming up for renewal in business, and there is a significant new building order book, and that's perhaps the most in all the energy segment right now, we will see a correction in that market. We are always there to participate. I mean, it's a market that we want to participate more and more, but we always do it at the right time. The difference between us and the LNG-specific companies is that we are not pressured to invest in LNGs in order for us to grow our company. At the same time, as you said, we can do a shuttle tanker, we can do a Suezmax, we can do an MR. The board sits around the table and says, what are the best returns? So I think this is what makes TEN special. We do not have to follow just LNG. LNG is going to be part of our growth, but not if it's not the best return.
spk07: Yeah, that's very clear. Thank you. Very, very helpful. I will turn it over and, you know, looking forward to my visit to your offices before possible. Thank you.
spk06: Thank you. Our next questions come from the line of Clement Mollant with Value Investors Edge. Please proceed with your questions.
spk00: Good afternoon. Thank you for taking my questions. I wanted to start by congratulating the team for reaching the 30-year mark. In the press release, you mentioned you have secured new contracts and extensions for 15 vessels, including two LNG carriers. Could you provide some commentary on the duration and the expected contribution from the new contract on the NEO Energy?
spk02: We would like very much to tell you all these things in private. So please don't feel free. What I can tell you is that the contribution of the 15 new charters and extensions that happened since the last quarter is of the magnitude of in excess of half a billion dollars in freight, which has brought our next three and a half year forward employment, future employment, to income coming to 1.6. What we can say is that the energy has been chartered with a very healthy six-figure number. We would be happy to answer your questions in private in order to avoid confusing other people with our business.
spk00: Makes sense. We'll do that. Thanks for the call. And on the press release, you also mentioned that the board may declare an extra dividend on top of the one you already announced. And I was wondering, could you provide some additional insight on what the drivers behind the decision would be? Is there a specific metric they would look at, such as cash on the balance sheet or the outlook? Or is it a mix of several factors?
spk02: Well, this question, we have the luxury to have the chairman of our board here. So, Mr. Chairman, please... Give us a little color to what will take us to convince you to give a higher dividend.
spk05: Thank you, Nikos. An extraordinary dividend. We will examine that. We'll see how business will progress for the remainder of the next few months. It's a judgment call. There are no triggers. And it all depends on the numbers that we expect to see that they materialize. So it is not based, it will not be based on any triggers or formulas or whatever. We really need to be convinced that what we see as being sustainable performance really materializes. That's all.
spk00: All right. Thank you for the caller. That's all from me. Thank you for taking my questions, and congratulations for the quarter. Thank you.
spk06: Thank you. There are no further questions at this time. I would now like to hand the call back over to Nicolas Sacco for any closing comments.
spk02: Well, thank you very much for participating in our first quarter. We hope our second quarter in the six-month results to be as good or better. I think we're going to be seeing the significant increases of new charters that we talked about actually becoming numbers in the second quarter and third quarter. So I think because a lot of the business that we actually concluded in the last eight weeks are going to be delivered without this period of time. So we're looking at a good, healthy year going forward. This is, as we said, it's a milestone year for us, 30 years as an entity, as a public company. We will be celebrating, again, by doing some business in the meantime. Whoever is in London during the... shipping, London International Shipping Week in the middle of September. Then we'll be sponsoring a big shipping seminar and offering a few drinks for celebrating our 30 years in the IMO building, the building where our board member and head of our operations and environmental committee, Mr. Mitropoulos, has a lot of memories from being the Secretary-General. And I'm taking this opportunity to wish you happy birthday. And thank you, Mr. Mitropoulos, for celebrating your birthday with us today during a very important time. And then of course the actual date of our first listing on the Oslo Stock Exchange was the 10th of October 1993. for those of us who still remember the past, which is good. And we will be celebrating that thanks to Capital Link's arrangements, and I think Nick is listening in, in New York. together with parts of the family, having both my daughters studying at Columbia University in New York at the time. They will be the main entertainment of that period. They're here listening in, that's why I'm saying this. And that will be another good opportunity for us to meet the shareholders face-to-face. But of course the team is going to be in New York during Marine Money, which is in a couple of weeks. And we take this opportunity to thank you for your trust and looking forward. I mean, what we did last year when we were celebrating 20 years on the New York Stock Exchange, we called it 10 at 20 and I'm surprised broke 20 for a considerable time. Now it's under that. It's very undervalued. Now 10 at 30, it's a higher target, but you never know. I hope we can achieve it. Thank you very much.
spk06: Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect at this time. Enjoy the rest of your day.
Disclaimer