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spk00: Thank you for standing by, ladies and gentlemen, and welcome to the Tsakos Energy Navigation Conference call on the second quarter 2023 financial results. We have with us Mr. Taki Arapoglou, Chairman of the Board, Dr. Nicholas Tsakos, President and CEO, Mr. Paul Durham, Chief Financial Officer, and Mr. George Sargou, 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 names to be announced. I must advise you that this conference is being recorded today. And now I pass the floor over to Mr. Nicholas Bornozis, President of Capitalink, Investor Relations Advisor of SACOS Energy Navigation. Please go ahead, sir.
spk05: Thank you very much and good morning to all of our participants. As the operator mentioned, I'm Nicholas Bournos of Capitalink, investor relations advisor to Tsakos Energy Navigation. Before I continue with the conference call, I would like to take this opportunity to express on behalf of all of us our condolences to the Tsakos family for the loss of Dr. Irene Saroglu Tsakos, Nicholas's beloved mother, a distinguished figure in Greek shipping, who is also known as the doctor of shipping. She co-founded the Tsakos Group and pioneered naval medicine, passionately authoring medical literature and caring for seafarers and their families. She received numerous prestigious tributes from institutions like the Academy of Athens, the Hellenic Foundation of Cardiology, Euroclassica, and many, many others. And again, our condolences to the Tsakos family. And now we'll proceed with a conference call. This morning, the company publicly released its financial results for the second quarter and six months ended June 30, 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 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.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 that 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 Security Litigation Reform Act of 1995. Investors are accustomed that such forward-looking statements involve risks and uncertainties which may affect tens And before passing the floor to Mr. Takisarapoulou, the chairman of the board, I would like on a happier note to say that we hope to have Dr. Tsakos with us in New York more often, now that his two daughters will be attending Columbia University. And on another happy note, to remind everyone that Tsakos Energy Navigation is celebrating this year the 33rd year of being a publicly listed company, I would say a unique and enviable track record. And we all know the company's commitment to creating shareholder value for the long term. And with that, I will pass the floor to Mr. Takis Arapoglou, the chairman of the board of Cyprus Energy Navigation.
spk03: Thank you. Thank you, Nicholas. Good morning, everyone, and thank you for joining our call today. As expected, a great set of results. The results, of course, benefit from continued strength in the market. Management needs to be thoroughly congratulated. They are making best use of all opportunities in the spot and time chart of business following the model. The model, of course, allows them to be able to reward shareholders in good and in bad times. So in this framework, we've been repaying PREFs consistently in the last couple of years, and we have continued paying dividends, returning directly or indirectly value to our shareholders. We feel that it is appropriate with this framework excess liquidity to continue refreshing the fleet, selling old stock and buying new state-of-the-art vessels, which we do. And hopefully the market will continue from going forward, and the model will continue to reward everyone. So that's it for me. Congratulations to Nico Tsarkos and the team, and looking forward to continued success. Thank you. I pass on the floor to Nicolas Tsakos.
spk06: Thank you, Chairman, and good morning from a very sunny, humid, and warm New York. Good thing is air conditioning is working full gear here, so it's a good thing for product carriers. Again, it has been the first six months, and thereafter has been an exciting period for energy and tanker shipping. I think we have placed the company in a good position to take advantage of perhaps similar or even better days going ahead, since the supply and demand equation allows us to envision better, better days or similar days ahead. And we see this happening in the marketplace every day, since A lot of our major clients are looking to charter our ships and are chartering our ships two or three years down the road with very positive returns, plus profit-sharing. And also transactions that happened in the last week. VLCCs went out for a relatively modern VLCC, which started for a three-year period in excess of $50,000, close to $55,000 a day. This is the highest rate on a period within a VRCC charter since 2008. So it's been a long 15 years to see something like that, and that was from a major oil charter. So the prospects are good. As Nick Bournosis kindly said, we've been around for 30 years, and we're planning to be around for a few more years. The Chagos group is the major shareholder in this, and we are driving the boat hopefully to safer and wealthier harbors as we go forward. It's been the first six months we took advantage of the timely sale of our first-generation vessels. We are replacing them now with green in our 10-ship green initiative. I will hopefully be flying at the end of this month to Korea to start taking delivery of our dual fuel vessels, ships that can burn not only fuel oil, but also gas and methanol and other combinations. These are the ships that we are looking to design and take advantage going forward with our clients. We're keeping a very conservative balance, as always. Ten has never stopped paying a dividend in our 30-year tenor. Twenty years now we've been on the New York Stock Exchange. I think we have made profits of $2.5 billion and distributed $530 million in dividends, in common dividends, and on top of close to $800 million. in including our preferred dividends. We are, the prospects for next year seem to be healthy. As I said, the supply and demand and the appetite of our clients looks positive, and we're looking to navigate. Our aim is now, hopefully, we believe that our share price is still very undervalued, and I think our aim here, and I think As very nicely, Nick, thank you very much for your wishes on having to pay for two college tuitions at the Naver League University. I have to work harder and be in New York more often to get the share price higher up. And with that, I will ask George to give us a little bit of the background of how we have come, and then we can answer questions together, and Paul will give us the financials.
spk04: Good morning to all of you joining our earnings call today. 2023 is the year we celebrate our 30th anniversary as a public company. We reported this morning the financial results for the second quarter and first half of 2023. Assuming no change in the market conditions during the second part of the year, more probably 2023 is going to be as good, if not better, some key takeaways, we continue to experience the largest change in trade flows to ongoing crude and oil product movements as a result of Western sanctions on Russian seaborne oil. These changes appear to be permanent. Before the war in Ukraine, Europe was the biggest client of Russian oil. But as the war continues, Russian oil was Guyana, South America 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 6% of the existing fleet. Many yards are now reporting availability from 2026. And global oil demand continues to grow, boosted by the recently by strong summer air travel, increased oil use in power generation, and surging petrochemical activity in China. The latest published forecast from the International Energy Agency continues to have global oil demand growing by 2.2 million barrels per day this year to a figure of 102.2 million barrels per day in 2023. If realized, it will be an all-time record. There are global headwinds as well, like persistent inflation, tightening global financial conditions, the war in Ukraine, and the OPEC-plus production cuts until the end of the year. Oil demand is growing and tanker fundamentals continue to favor a strong tanker market for the next two to three years. Let's go to the slides of our presentation. Starting with slide three, we see that since inception in 1993, we have faced five major crises, and each time the company came out stronger thanks to its operating model. Recently, we came out of the COVID pandemic, and we continue to navigate the challenges created by the war in Ukraine. The fundamentals, record low tanker order book, an aging fleet, and post-COVID oil demand recovery, even without the tragic war, were positive for our industry. Russian seaborne oil as a result of the war served as an additional catalyst to propel freight rates higher as long-established trade routes were disrupted and voyage distances were elongated. Almost all of the Russian volumes are now flowing long haul to India and China. At the same time, U.S. crude oil exports have gone up from averaging about 3.3 million barrels per In slide number four, we see the company's fleet growth and capital market access since inception. We raised capital for growth, not at the top of the market, but at times when asset prices were usually low. In this slide, the numbers in the blue boxes present the company's common share offerings, and in red, the series of preferred share offerings since the company's New York Stock Exchange listing. B, C, and D, plus a privately placed preferred instrument of 35 million initial par value, have been fully redeemed, as we speak, saving the company in excess of 18 million per year of coupon payments. In slide number five, we see the fleet and its current fleet employment. We have an operational fleet of 58 vessels. We have 31 out of the 58 tankers, or 53 contract of affrightments, and time charters with profit sharings. 44 out of the 58 vessels, or 76%, are in secure contracts, fixed time charters, and time charters with profit sharings. This means that TEN is well positioned to continue capturing the positive tanker market fundamentals. Any divestment of earlier generation vessels, as we have done in the first quarter of this year, with the six 2005 built MRs and the two 2000 TEN has currently a new building program of ten tankers, consisting of two subtle tankers for delivery during 2025, four dual-fuel Afra MAXs for delivery starting from the second half of this year. In fact, the first one will be delivered to us later this month, two eco-friendly scrubber-fitted Suez MAXs for delivery also in 2025, and as announced today, two scrubber-fitted MR tankers for delivery in early 2026. In slide 7, the left side presents the all-in break-even cost for the various vessel types we operate in 10. Our operating model is simple. We try to have our time charter vessels generate revenue to cover the company's cost expenses, which means paying for the vessel operating expenses, finance costs, overheads, charting costs and commissions, and let revenue from the spot trading vessels contribute to the profitability of the company. Fleet utilization in the For every $1,000 increase in spot rates, the impact in annual EPS is plus 17 cents based on the number of 10 vessels that currently have exposure to spot rates. Debt reduction in slide 8 is an integral part of the company's capital allocation. The company debt peaked in December of 2016. Since then, we have repaid $378 million of debt and redeemed $211 Slide 9 has a snapshot of the company's financial performance since 2004. We would like to highlight the revenue growth as the fleet increased during this period, the changes in EBITDA as the company navigated the ups and downs of the shipping market in this 20-year period, the bottom-line profitability Ten has always paid a dividend irrespective of the market cycle. Our dividend policy is semiannual. We announced today that the total dividend for the year will be $1 per share. That's 5% yield based on the closing of share price last night. To break this $1 down, The one dollar that will be paid this year is four times the 25 cents we paid in total last year. Following this year's last dividend paid in December, the company would have distributed in excess of 528 million to its shareholders since the initial listing in 2002, or on average about 25 million per year. In slide 11, global oil demand continues to grow. Despite financial and geopolitical headwinds, the International Energy Agency expects global oil demand to grow by approximately 2.2 million barrels per day this year to 102.2 in 2023. It's going to be a record year with most of the growth coming As global oil demand continues to grow, let's look at the forecast for the supply of tankers. The order book as of August stands at less than 6 percent, or 338 tankers over the next three years. This is the lowest the order book has been in more than 30 years. At the same time, a big part of the fleet, approximately almost 2,100 vessels, or 37 percent, is over 15 years. 712 tankers, or almost 13% of the fleet, are currently over 20 years. The next slide shows the scrapping activity since 2018. For this year, scrapping is low, but we have upcoming regulations, an industry with decarbonization initiatives, and almost 30% of the fleet being over 20 years. We believe scrapping is going to pick up. highlights for the second quarter and first half of the year. Thank you, George.
spk02: Revenues totaled $483 million, a 32% increase over the prior half year, with voyage expenses falling 24% and vessel operating expenses showing a decrease compared to last year's six months. In the six months, EBITDA increased to $356 million, adding to the company's cash reserves. In the three months of June, the company gained net income of $61 million, helped by a stronger U.S. economy than in the earlier months. Revenues in the three months amounted to $220 million, a 2% increase with operating expenses at a similar level as before. Time charter revenue in the three months amounted to $137 million, while total spot revenue amounted to $84 million. Our profit share also contributed $24 million in the quarter. In the three months, Vessel voyage expenses fell by 40% due to the prior three-month period as expenses decreased due to lower bunker costs. Total vessel operating expenses stayed at the same levels as did the previous year's three-month depreciation and amortization. In recent months, we have been successful in redeeming large amounts of preferred stocks totaling over $107 million, which has already resulted in a generous benefit to our bottom line that will continue over the future. Over the past month, apart from building new vessels and redeeming preferred shares, the company has taken advantage of utilizing in-house resources to restructure much of its organization and to develop the company in new directions. In the remaining months of the year, therefore, this will continue to be a major focus for management. And finally, In order to provide more detail to our financials relating to the three months and to the six months, there will be an SAC filing shortly that will provide considerable extra detail for our shareholders and auditors.
spk06: No, I'm here. I was actually on mute listening to Paul's achievements. So I'm back on, I'm back on. And, you know, Paul keep on pumping up the numbers. I think the gist out of what we have said is that... We made in six months 240 million. Hopefully it will increase significantly for the year. And out of which 135 or more million has been distributed in one way, 30 of it into common surdividends, and the remaining buying back expensive prefers that were very useful 10 years ago. when the company was growing, when everybody else was facing very difficult times, and we were growing using these expensive vehicles. We can afford to redeem them and plan for a very, very safe future. But if we had actually, you know, dividend out everything to common shareholders, that would be an unprecedented dividend of $4.50 a share. on a $20 very, very cheap share. But I think we are here for the long term. If we had done that and we maintained the obligations of our preferreds, very soon we would be in the problems that a lot of our peer group has been facing over the years. So our aim is to always keep our head above water, literally. and navigate safely and profitably going forward. I'm very happy that we took these decisions. And then another $100 million of our net income has gone into green, double-fueled vessels, and I think, as George described, a very, very demanding, exciting new building program going forward. So, I mean, we put, you know, our money where our mouth is. Is this the expression? Okay. And we're going forward. Now, with a much more simple and easy to navigate balance, we will be able, I think, to increase our dividends for common shareholders also going forward. It has been, since we... Since the end of June, we took advantage of the strong market. We have increased our business. We have made eight new charters. We have extended that surprisingly for many very high levels on our LNGs. We're looking at six on daily, six-figure daily highs on those ships. So we will be pleasantly, hopefully surprised, going forward for the nine months and the year. And I think this will be, for sure, another record year. And hopefully 2024, if the predictions are right, could be even a better year. But anyway, I think we are in much safer waters. And with that, I would like to open the floor for any questions. Thank you.
spk00: Thank you. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Omar Nocta with Jefferies. Please proceed with your question.
spk01: Hey, guys. Good morning. Good afternoon. Always a fun and exciting update from the Penn team. I wanted to ask about your fleet makeup as it is and how it could be going forward. You know, recently your crude tanker exposure has risen, you know, as a result of selling some of the older product tankers but also taking delivery of your more modern crude vessels. You just placed the orders for the two scrubber-fitted MRs. Is this the beginning of an expansion cycle? pretend to maybe bring the fleet back into balance with the included product?
spk06: Yes, thank you. Thank you very much, Omar. Yes, I mean, we took the timely decision for an en bloc sale of a large number of our first-generation vessels that served us amazing well when we did those deals back in the You know, 15 years ago when we built those ships, we were the largest ice class operator. We took advantage of that period. And those ships really were sold almost at the same price. as we bought them 15 years ago. And I'm talking about the eight vessels that we sold in the first six months of the year. And naturally, we do not want to take ourselves out of this market. So we are building now either dual fuel and environmentally much, much, much more friendly, similar vessels to replace them. So we are not, you know, we will not spend every single penny on building the fleet, but we will continue and I think we will see the fleet coming back on that side too.
spk01: Okay, thank you. And then you mentioned the dual fuel, and you have the AfriMax dual fuel LNG carriers, and you mentioned in your opening remarks looking at alternative fuels as well. What's your appetite for methanol when it comes to the product tankers? And then would you order ammonia-ready chips, or would you wait until the ammonia becomes maybe more viable or truly dual during the construction process?
spk06: This is the billion-dollar question that we're, you know, it reminds me of the vaccines for the COVID. You know, you never knew if we should do Pfizer or if we should do Johnson & Johnson or Moderna. So thank God we do not have any disease. But, I mean, we follow the lead of our clients. I... An ammonia-ready vessel is really, you know, it's a million-dollar investment, so we might do it, but I'm not convinced that ammonia is the future, mainly because of the hazard that can be for the seafarers and the problems we can have, you know, ourselves, not wanting to put our seafarers at risk. And, of course, the seafarers' unions, I think, are not looking at ammonia as a happy alternative. On the other hand, methanol, which is somewhere between gas and today's fuels, is something that I would take a chance on. And we are discussing on actually doing also taking methanol as an optionality. I don't know if this is answering your question, but I said our new building department, plus our clients, we are looking very closely to the alternatives. of going forward.
spk01: Thank you. Definitely, Nick, that's helpful. And maybe just one final one. For me, just on the 2MR new building, what's the idea in terms of deploying those ships? Are you already in discussions with the customer to put those on-term charters ahead of delivery? Or are these more opportunistic and you intend to take delivery of them, and then if you put them on contract, great, if you keep them on the spot, great? Just wanted to get a sense of how these ships are looking in terms of...
spk06: Well, if you look at our, you know, currently we have ten vessels being built. And, I mean, you will see that out of the ten vessels, six are already with long charters and profit shares and very accretive transactions. Then we have the Suez Maxis, which I'm very excited about. and, of course, the Amars. So, you know, we are keeping those ships, I would say, to play with the market. We might... There is pressure mainly to charter a couple of those ships long with profit-sharing arrangements, which we will do against our clients' very good names, but we will keep also a spot exposure.
spk01: Got it. Okay. Well, thank you. Thanks, Nick. Thanks, team. I'll pass it over. Thank you.
spk00: Thank you. Our next question comes from the line of Clement Mullins with Value Investors Edge. Please proceed with your question.
spk07: Good morning. Thank you for taking my question. I would like to start by asking about G&A, which increased significantly quarter over quarter. Could you provide some commentary on the drivers behind the increase, and how should we think about DNA going forward? Should we expect it to return to the 7-8 million range?
spk06: Well, our DNA, if you look at it historically, is one of the lowest in the industry. I think this year it has gone up because of all the issues that I think Paul talked to discuss about organizing a huge part of our organization against cyberattacks, having a new state-of-the-art control room. So, yes, the short is I think we will be going back to where we were after this initial very significant protection investment going forward.
spk07: Thanks very much. And regarding the dividend, you've declared a special $0.40 distribution. How should we think about dividends going forward? Do you plan to maintain the regular dividend and use special distributions to complement them? Or what's the overall strategy?
spk06: This has always been our strategy. We pay something in June. June and December are the steady dividends. And in occasions like now when we have you know, very good earnings, we will be topping that up. So this has been, if you look, I think George, Mr. Zaroglu has done a slide that shows that we've been doing this through thick and thin. Even at times that we made very little money, we still maintained our dividend policy because it's very important for shareholders to have this stability.
spk07: Thanks, Samuel. And final question from me. You did not renew the ATM, which makes a lot of sense given the significant discount your shares are trading at. Is there any appetite to potentially repurchase shares?
spk06: We will. It is not on the top of the list, and I think we refer to it in our price release. Our priority is is, of course, to reduce our debt. Then our perpetual preferreds is another priority to reduce. And, of course, our main issue is to replace the fleet and to increase the dividend. And after that, we might consider... But as you know, we only have 30 million shares outstanding. The management and the Chakos family... own close to 40% of that, so we do not want to reduce liquidity. We feel much more comfortable rewarding shareholders by dividends rather than paying shareholders to leave us.
spk07: Makes sense. That's all from me. Thank you for taking my questions. Thank you.
spk00: Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Dr. Takos for any final comments.
spk06: Well, thank you very much. It has been a pleasure announcing another record profit period. It is always, and we're looking forward to maintain and enhance our results. I was happy to Also to say that we didn't talk about it a lot. Paul mentioned it, our CFO, that we do not only have a positive income, but we are also maintaining control on our expenses, because I think this is very important. Many times in a good market people forget the expenses, and that bites them when things turn sour. That is also a good sign from us. We are there to... Our aim now, I think, is to get our share price to the levels it should be. And I think it has a long way to go from where we are today. We're not one-quarter-minded company, so we will not do things just to make investors happy for the next quarter and then surprise them on the following one. We'll look at things more longer term. And we want to thank you for your support. As Nick Bornozzi said, we will be celebrating our actually 30 years since we entered the Oslo Stock Exchange back in October of 1993. And we will have a presentation of the company's doing in London next week for that, and in New York on the actual date. And, of course, later in the month also back in Europe. So thank you very much, and looking forward to meet a few of you and help you appreciate the value of our share.
spk00: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.
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