Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Aegean Marine Petroleum Network Inc. (NYSE:ANW)

Q3 2012 Earnings Conference Call

November 15, 2012 8:30 am ET

Executives

Peter C. Georgiopoulos – Chairman

E. Nikolas Tavlarios – President, Principal Executive Officer

Spyros Gianniotis – Chief Financial Officer

Analysts

Douglas Mavrinac – Jefferies & Company, Inc.

Ben Nolan – Knight Capital

Kevin Sterling – BB&T Capital Markets

Chris Snyder – Sidoti & Co.

Operator

Good morning, and welcome to the Aegean Marine Petroleum Network Inc. Third Quarter 2012 Conference Call Presentation. I would like to advise everyone that there will be a slide presentation accompanying today’s conference call. That presentation can be obtained from Aegean’s website at www.ampni.com.

I also want to inform everyone that today’s conference is being recorded and is now being webcast at the Company’s website www.ampni.com. We will conduct a question-and-answer session after the opening remarks and instructions will follow at that time. A replay of the conference will be accessible through the next two weeks by dialing 888-203-1112 for U.S. callers and 719-457-0820 for those outside the U.S. To access the replay, please enter the pass code 8476067.

At this time, I would like to turn the conference over to the Company. Please go ahead.

Spyros Gianniotis

Thank you, and welcome everyone to Aegean Marine’s third quarter 2012 conference call. My name is Spyros Gianniotis Aegean’s Chief Financial Officer. With me today is Peter Georgiopoulos, Chairman of Aegean, as well as Nick Tavlarios Aegean’s President

Before we begin our presentation, I would like to note that this conference call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as expects, anticipates, intends, estimates, or similar expressions are intended to identify these forward-looking statements. These statements are based on Aegean Marine Petroleum Network Inc’s current plans and expectations and involve risks and uncertainties that could cause future activities and results of operations to be materially different from those set forth in the forward-looking statements.

Important factors that could cause actual results to differ include our future operating or financial results, our ability to manage growth adverse conditions in the marine field supply industries, and increased levels of competition. For further information, please refer to Aegean Marine Petroleum Network, Inc’s reports and filings with the Securities and Exchange Commission.

As outlined on page four of the presentation, Nick will provide our recent highlights. I will then review our financial results and Nick will review our Company strategy. After that, we will open the floor to questions.

I will now turn the call over to Nick.

E. Nikolas Tavlarios

Thank you, Spyros and good morning everyone. During the third quarter, management continued to achieve steady progress enhancing the company’s profitability in a difficult macro environment as net income on an adjusted basis has increased each quarter-to-date in 2012.

Consisting with our goals to strengthen Aegean’s integrated marine fuel logistics chain, we launched physical supply operations and commenced onshore storage operations in Hong Kong and Tanger-Med respectively. We also increased utilization and reduced operating expenses for the second consecutive quarter.

While overall market conditions remain challenging, we believe our best and scalable network for the global supply marine fuel, combined with the strong financial platform, both well for Aegean to continue to capitalize on the positive demand for its comprehensive services and drive future earnings growth.

I will now begin my discussion on slide 6 of the presentation. During the three months ended September 30, 2012, sales volumes increased slightly to 2,716,388 metric tons. Spyros will provide more details regarding our financial results. I would like to know that based on ongoing implementation of our strategy and that enhancing profitability, gross profit increased to $74.4 million in Q3.

For the three months ended September 30, 2012, we reported our operating income of $15.1 million and EBITDA of $24.6 million, year-to-date EBITDA as increased 36.5% to $68.1 million as compared to $49.9 million for the nine months ended September 30, 2011.

Net income for the quarter was $8 million or $0.17 basic and diluted earnings per share. This compares adjusted net income of $5.3 million or 11 basic and diluted earnings per share for the third quarter of 2011, representing an increase to more than 50%.

We are pleased by the notable improvement in our finance results, despite the challenging market environment, we remain focus on strengthening Aegean’s leading industry brand and leveraging the company’s global marine fuel platform.

During the third quarter, we commenced physical supply operations in Hong Kong, one of the large container ports in a world that serves as economic gateway to mainland China. We also announced expansion plans in Barcelona, which will increase our global presence in 21 markets, covering approximately 60 ports, as compared to five service centres at this time of our IPO December 2006.

In terms of the performance on our market since third quarter, sales volumes in Greece increased on sequential basis due to strong overall ship traffic, which is partially attributable to the summer crude season. As a reminder, we have not been affected by the turmoil in Greece, which represents approximately by 5% of our total sales volume. Nor do we have any exposure to Greek financial markets.

Gibraltar also registered a positive growth rate during the third quarter as in West Africa and Panama. In Tanger-Med, third quarter sales volume were essentially flat as compared to the previous quarter. We commenced utilization of a new onshore storage facility totaling 218,000 cubic meters during the third quarter and expect this new facility, we will maintain exclusive storage and buffering rights to support future growth in distractive market.

Sales volume in United Arab Emirates remains steady in Q3. With our new 465,000 cubic meters onshore storage facility, which is expected to be open mid 2013, combined with completion of the Abu Dhabi pipeline that will increase traffic in the area. We remain well positioned to increase our market share in this broad region.

In Jamaica and Trinidad, sales volumes declined on consequential basis due to decrease in overall ship traffic and demand remains relatively stable at these markets. In Singapore, third quarter sales volumes were consistent with the previous quarter as we maintain our focus on executing more profitable transactions with top counter parties. Sales volumes in North America, the UK and Canary Islands are also relatively stable in Q3.

Aegean Northwest Europe or Aegean NEW formerly Verbeke formed inline with our expectations in Q3. With an expansive full service platform that clearly differentiations Aegean with the industry remain well position for future growth. During, the month of October 2012m we generated sales volumes approximately 883,000 metric tons. I would like to turn the call back over to Spyros.

Spyros Gianniotis

Thanking you, I will begin my discussion with slide eight. Since we highlighted our consolidated year-over-year results we provide sequential results for the third quarter of 2012. Since market conditions change frequently at this port around the time, we track our business quarter over quarter. As such the remainder of our financial presentation will compare results for the third quarter of 2012 to the second quarter of 2012.

In summary, sales volumes were essentially flat, while gross profit decreased 7%. Adjusted EBITDA declined slightly as net income for the third quarter increased 15.7% on an adjusted basis, primary as a result of reduced operating expenses, lower income taxes and the realized foreign exchange gains. Depreciation, totaled $5.6 million in both Q3 and Q2 2012. We continue to maintain a cautious outlook as overall market conditions remain challenging in-light of the ongoing softness international maritime shipping industry.

On slide nine, we illustrate our sales volume and gross spread. During the three months ended September 30, 2012 the gross spread per metric ton of marine fuel declined to $23.2 per metric ton compared to $26.1 per metric ton in Q2 2012. Primarily, due to the geographical sales mix of our current portfolio.

On slide 10, we provide our company-wide utilization, which is measured as volumes delivered per vessel per day. Gross utilization increased to 533 metric tons compared to 489.6 tons per vessel per day in Q2 2012. Adjusted utilization which excludes both scheduled and unscheduled non-operating or off-hire days also increased to 543.8 metric tons in Q3 compared to 526.8 tons for the previous quarter. As a reminder, our utilization does not include Aegean North-West Europe, which operates a spot based business model focused on providing same day sales and delivery services.

We believe our significant built-in fleet capacity positions Aegean well to further scale the business. As we continue to enter new attractive markets including Barcelona. We expect to enhance our ability to further increase utilization, especially as market conditions improve.

During the third quarter, we recorded a total of 69 non-bunkering days, which we define as scheduled and unscheduled off-hire days for our bunkering fleet plus days associated with strategically positioning of our vessel. This compares to 118 non-bunkering days in Q2.

For the current fourth quarter, we anticipate approximately 189 on bunkering days. As a number of our vessels is due for special survey dry dockings, of note, chartering days are not included in this estimate.

We also generated voyage revenues of $6.4 million in the third quarter versus $6.3 million in the previous quarter, as we maintain our focus on achieving a level of consistency in our results by chartering out selected bunkering tankers on short term contracts.

Turing now to slide number 11, we illustrate the fixed cost structure associated with our sales volume. Bunkering vessel-operating expenses per metric ton sold including and excluding the consumption of marine fuel decreased in Q3 compared to the previous quarter.

In addition general administrative expenses excluding share based possession as well as storage costs declined quarter-over-quarter. While we are pleased with important strides we have achieved in enhancing operating efficiencies, our operating income per metric ton sold in Q3 decreased due to a lower gross spread per metric ton.

On slide 12 we depict the historical trend in gross profit and EBITDA. Gross profit which is calculated as total revenues, less total quarter sales have posted a cumulative annual growth rate of approximately 26.1% since the fourth quarter of 2006. Our EBITDA margin, which is calculated as EBITDA divided by gross profit increased quarter-over-quarter to 33% in Q3, despite a lower gross trend.

We believe in Aegean’s integrated supply model create opportunity to generate significant operating leverage as gross margins and sales volumes improve relative to our stable fixed cost operating structure. Based on management projections, we intend to expand annual EBITDA by approximately 20% to 25% over the next year.

Turning to slide 13, we detail our working capital position. During this year, our days payable outstanding and days receivable outstanding both increased quarter-on-quarter while our base inventory outstanding decreased. The net effect decrease in our cash conversion cycle to 22.5 days.

Furthermore Aegean reported net cash provided by operating activities of $22.2 million for the third quarter and generated free cash flow of approximately $10.4 million for the quarter ending September 30, 2012.

On slide 14, we highlight our strong balance sheet, a core differentiated for our company. As of September 30, 2012, our cash position was $77.1 million. And our working capital position totaled $74.5 million.

As a reminder, in reviewing our balance sheet strengths, it is important to note that while trade finance debt at the end of Q3 totaled $449 million to fund working capital, this debt figure has a rapid turnover between 30 days and 45 days.

In addition, our trade finance debt could be paid in full along with our entire trade payables, corporate debt, as well as a majority of our vessel debt based solely on the liquidation of our current assets. The only debt the remaining in our books will be approximately $117.6 million, which has secured by 33 vessels or $3.6 million of debt per vessel.

As a result, we have debt free assets that include 27 owned bunkering vessels, four floating storage facilities, and four existing on-shore storage facilities, with operations in 20 countries worldwide. As of September 30, 2012, our fixed asset debt to adjusted EBITDA multiples was only approximately 2.3 times.

Currently, Aegean has more than $954 million in total working capital credit facilities, or $1.4 billion including supplier credit, which positions our company well to continue to manage volatile marine fuel prices and procure large quantities of supply at a discount relative to our competitors.

The discussions with our lending group to replace our various existing facilities with one new credit facility in the amount of approximately $1 billion continue to progress. The new facility which would include the participation of nearly all of our current banks is expected to be finalized by the end of January 2013. We believe our substantial financial liquidity provides Aegean with a distinct competitive advantage as we further expand our integrated marine fuel logistics chain and strengthen our industrial leadership for the benefit of the company at its shareholders.

I will now turn the call over to Nick.

Nick Hondos

Thanks Spyros. I’ll provide a brief overview of our company strategy beginning on slide 16, which illustrates the significant growth in Aegean’s global marine field platform. As mentioned earlier, we expanded our strategic presence in the Far East by launching operations in Hong Kong. Port of Hong Kong is a major transportation hub serving critical global and intra-Asia shipping routes as well as passenger ferries. The port generates a total of approximately 5 million metric tons in annual marine fields sales volume, enhances our ability to meet the needs of our customers that operate on a world wide basis and further scale our business. We also intend to achieve important operating synergies with our existing service center in Singapore.

In furthering our objective to increase Aegean’s global market share we announced plans to commence physical operations in Barcelona, Spain by the end of the first quarter 2013. The Port of Barcelona is ideally located in the vast Mediterranean along major sea borne trade routes and benefits from extensive cruise passenger travel totaling approximately 10,000 transits per year and generate more than 1 million metric tons of annual marine fuel sales volume.

We intend to capitalize at the ports current modernization and expansion plan which is expected to increase capacity on completion in 2014. This will drive future growth in this attractive market. Complementing our physical supply operations we secured two onshore storage facilities on an exclusive basis over the long term in the Port of Barcelona with an option for a third.

On slide 17, we detailed the significant growth in our storage capacity. The two onshore storage facilities in Barcelona total approximately 50,000 cubic meters in capacity. The exclusive use of these facilities augment our onshore storage expected to be commissioned in the near future in the UAE as well as our existing inland storage facilities located in United Kingdom, Las Palmas, Panama and Cape Verde.

Upon completion of our owned and operated onshore storage facilities combined with our onshore storage in Barcelona, we expect to have total approximately 1.6 million cubic meters in capacity providing our company with important strategic benefits which are, first it enhances our purchasing power of marine fuel providing the ability to reduce cost of goods and improve growth spread. Second it supports our core physical supply operations by ensuring the availability of key markets enabling its chance to increase global market share while maintaining a conservative commodity risk approach.

Third, it enables Aegean to leverage its on-site blending facilities and sell all grades of fuels and distillates for the benefit of our customers. And finally, it diversifies our business mix by providing the opportunity to generate substantial income from leasing space to third parties effectively offsetting the cost with our storage.

Turning to slide 18, we highlight our bunker fleet growth. Our large and modern delivery fleet which currently totaled 56 vessels provides significant commercial advantage and the demand for modern tonnage remained strong. With one and large double-hull delivery fleets in the world combined with our expanding global presence, we expect to increase utilization and strengthen our Company's future earnings power.

As we maintain our focus on leveraging Aegean’s high quality logistic infrastructure, we remain committed to further enhancing our operational performance through the opportunistic sale of non-core assets. Since 2010 we have sold total of eight vessels representing total cost savings approximately $60 million on an annual basis.

In addition, the cash proceeds from these transactions further increased our financial liquidity. Our reported non-fleet cash book loss on the average size of the eight vessels, I'd like to note that the value of our current modern bunkering fleet of 66 vessels remain well above book value as a whole.

On Slide 19, we provide a breakdown by sector. Management’s conservative approach in expanding credit to high quality customers encompassing all major shipping sectors as well as leading cruise lines continue to serve Aegean well during the current downturn in the shipping industry.

By actively mitigating our exposure to any one particular customer segment combined with our sophisticated credit management systems, we remain well positioned to effectively manage counterparty risk. Based on our strong track record in this critical area, all of our customer payments remain current. As we have in the past, we will maintain our focus on executing transactions with top counterparties at the risk of sacrificing sales volumes.

On Slide 20, we provide an update on marine lubricant business. For the third quarter of 2012, the volume of marine lubricants sold was approximately 7,600 metric tons, which has more than doubled compared to the year earlier period. Year-to-date, we already have sold 21,475 metric tons of marine lubricants. We remain committed to expanding our global presence as an independent physical supplier of branded marine lubricants.

By marketing and distributing quality lubricants to more than 550 ports in over 40 countries, we intend to strengthen Aegean’s leading reputation as a provider of value-added services and expand the company’s long-term earnings potential.

That concludes our remarks. I like to open the floor for questions.

Question-and-Answer Session

Operator

(Operator Instructions) We will go first to Doug Mavrinac at Jefferies & Company.

Douglas Mavrinac – Jefferies & Company, Inc.

Thank you, operator. Good morning, guys. Just had a few follow-up questions for you. First, looking at 3Q, sales volumes obviously came in very strong $2.7 million tons, the gross profit down a bit though relative to what has been the last handful of quarters, and you talk about the geographic sales mix changing. My question is, was there any particular market were you saw that maybe downtick in the spread and because we read about and heard about Fujairah you had maybe some competitors dumping product into the market, A) is there any particular market were you saw maybe a downtick in the spread, and then second is that the type of event that would cause a downtick in spread in particular market as someone dumping product.

Spyros Gianniotis

Yeah. Today is I mean we saw it happen exactly what you said in Fujairah and I mean just answer the last part of your question, we see that as a one time event, you had a lot of the Iranian crude come in and dump that market and whether that was as a result of some more people trying to get that oil, Iranian is trying to get that oil out before increased pressure, I’m not sure but that result come in the market and they really dump the market so we wouldn’t take it as a trend, we take it as a sort of a one-time event, I mean Nick want to add anything.

E. Nikolas Tavlarios

Yeah but it just certainly upset the pricing, there is no question about a win that comes into the market and we think that there is certainly pressure make sure that stops and we will anticipate that kind of we don’t engage selling that oil, so that people

Douglas Mavrinac – Jefferies & Company, Inc.

Yeah. Now it totally make sense and just order of magnitude it was a just a take down , so that figure was like a one off market like that so that totally makes sense. Second question in your prepared comments you talked how you have reduced operating cost during the third quarter and looking at your past couple of quarters you’ve done it more than just in 3Q, 1Q you were at $48 million, 2Q you were $45 million and at 3Q you at $43 and my question is how you guys been success or even kind of working on to be able to basically tight down your OpEx so successfully over the last couple of quarters.

Peter C. Georgiopoulos

There is a lot of question that the success with our sale of the non-core assets is obviously had some traction here that is reflected by those reducing expenses, that’s a sustainable trend so to speak and we definitely have a few more that we are looking to move out too. And you could see how important they are to making our company that much more efficient and that more profitable, really puts us in a good position for the future when things do a group, but this marketplace will have that more profitability.

Spyros Gianniotis

When you think about the older ships right, you’re depreciating over a shorter period of time, so your depreciation is far higher, and then your operating costs and your repairs and maintenance far higher on older ships. So once you get rid of those, you’ve got not only depreciation decreases, but also repairs and maintenance and operating costs decrease, and so that’s what we’ve been successful in doing. So there is a lot of piece of one-time things, these are things that we’ve done that will continue to hold through the coming quarters.

Douglas Mavrinac – Jefferies & Company, Inc.

Right. Now, once again it totally makes sense. And then, thinking about 3Q OpEx and thinking about kind of what you guys have been doing as well kind of from a start-up standpoint, you mentioned Hong Kong has ramped up in 3Q. Are there also any one-off kind of start-up expenses that you may have incurred that would be kind of diminishing as we go forward as well as you get kind of off the ground and running?

E. Nikolas Tavlarios

Yeah there is no question in commencing operations in Hong Kong, we definitely had more expenses than usual, it’s actually a pretty sizable figure, about a $1 billion. So, yeah, that actually something we would see normally profitable and not in just shown up as an expense, but much, it would definitely have a greater impact on our figures.

Douglas Mavrinac – Jefferies & Company, Inc.

Yeah, gotcha. so net-net, sales volume are running very strong, may be the spread tick down a little bit from a one-off event, but obviously that’s just one-off event and your OPEX is continue to go down as you’re starting to or continuing to kind of take out older assets and what these one-off things start-up expenses continue to diminish, I mean that’s basically the just are right?

E. Nikolas Tavlarios

Yeah. That we feel confident…

Douglas Mavrinac – Jefferies & Company, Inc.

Got it.

E. Nikolas Tavlarios

That this trend will continue.

Douglas Mavrinac – Jefferies & Company, Inc.

Gotcha, perfect. And then just final question, just a reiteration question, like whenever you’re talking about October sales volumes, the number is 883,000 sales for October?

E. Nikolas Tavlarios

That's correct.

Douglas Mavrinac – Jefferies & Company, Inc.

Okay, perfect. That all, I had guys, thank you.

E. Nikolas Tavlarios

Thank you.

Operator

We’ll go next to Ben Nolan with Knight Capital.

Ben Nolan – Knight Capital

Hey guys. Nice quarter.

Spyros Gianniotis

Thank you.

E. Nikolas Tavlarios

Thank you.

Ben Nolan - Knight Capital

Good to see it picking up the sequentially, it seems for quite a few quarters.

E. Nikolas Tavlarios

It has been 7 quarters now, we are very proud of that, since we added the Bakal company years ago, it's been seven quarters of meeting the stream is ticking up.

Ben Nolan – Knight Capital

Yeah, it's definitely the right direction. I had a couple of questions that – I guess first, where do you – may be you give me an idea, where do you stand with respect to the facility in Fujairah, specifically, how much is left to spend? Where is the bank debt is associated, is that been consummated or how much, how large the loans should we think of on an average scale?

Peter Georgiopoulos

Let just opened with a comment on Fujairah, we'd expect little over $70 million today from our operating revenue for operating cash let’s say. And that process is due to be completed in mid 2013. I'm just going to turn this over to Spyros now he can talk to you about the two facilities, one being the Fujairah facility, the second being the bank facility.

Spyros Gianniotis

Yeah, so talk about Fujairah first. We estimate, about another $35 million to $40 million we got left to spend on that end

Ben Nolan – Knight Capital

We’re urging on the bank facility

Spyros Gianniotis

We should have done at the end of January, that’s the global facility bank.

E. Nikolas Tavlarios

Even before that made, but we expect to finalize we are pretty close to the signing of the recommendation that we fund 70% of the cost of the project.

Ben Nolan – Knight Capital

Okay. So you actually be getting might back out of that than I would assume.

E. Nikolas Tavlarios

That’s correct, yeah.

Ben Nolan – Knight Capital

Okay. And that you said by the end of the year may be shortly after?

Spyros Gianniotis

Yeah, we would say by the end of the year, yeah.

Ben Nolan – Knight Capital

Okay, perfect. That’s good. The other question I had is with respect to your cash receivable, I noticed that they did take up a little bit in the quarter even though fuel prices were down some quarter-over-quarter and subsequently your days your turn slowed a bit. I was just curious as what was the cost behind that, is that just maybe not factoring as many of your receivables are, I mean just with what was behind there?

Peter C. Georgiopoulos

Yeah that’s correct. The factoring I mean that we have sold to the facility below less than $50 million in this, but that was not the main effect. I think also the prices, it’s not a stock, so I mean it depends. I mean we maybe, you are realizing invoicing some more things towards the end of the months, so the receivables pick up. So if you top of, let’s say one-third is, because we factor less, and then two thirds because of timing effects.

Ben Nolan – Knight Capital

Okay.

Spyros Gianniotis

Also payables were higher.

Ben Nolan – Knight Capital

Right, okay. No that’s what I thought, but…

Spyros Gianniotis

Yeah.

Ben Nolan – Knight Capital

And then question sort of related to you’d mentioned that you chartered out a number of new vessels, should we expect that to change as you open in Hong Kong, opening the port in Spain soon. Will the number of chartered out vessels decrease as they are moved over to new locations or how should we think about that going forward.

Spyros Gianniotis

Yeah. That’s correct, I mean as we open up new stations as we scrap the older ships, as those ships come off charter and as they are needed they will be put into service.

Ben Nolan – Knight Capital

Okay. But the number is still 8, 9 at the moment something like that, the vessels that are chartered out.

Spyros Gianniotis

Vessels charted out.

Peter C. Georgiopoulos

It’s five vessels.

Ben Nolan – Knight Capital

Okay. Perfect, all right, and then last question from me and obviously I know that you can’t comment on this too much, but OSG filed yesterday, and I don’t expect you to speak specifically to whether or not you have any exposure there, but just in general. How do you think about credit risk is a big issue for you guys, doesn’t seem as though the market is getting better in most segments, when you do have sort of things hit the wall, like they have in this case, how do you go about handling sales to those guys or anybody in that situation. I mean what’s the what do you do to sort of minimize your risk of loss.

Peter C. Georgiopoulos

First of all the trade market the tanker market ticked up yesterday as we know and the cargo has been picking up. so those two markets last couple of weeks have been picking up a little bit that’s just a global thing. Secondly, look at our track record, we have managed for years now and had very, very de minimis bad accounts. but secondly, the third thing is when the company goes into bankruptcy or protected by the courts. That being said, and then I will talk about overseas specially.

We’re just very cautious and I think we’ve had a cautious approach and sometimes we criticize for it, but in situations where other people have gone heard, we haven’t had those surprises. So people will criticize as all they want for being conservative, we think in markets like we’ve been dealing with in the last four years, when you look at our track record has been in terms of getting paid and we get paid. So I think we do our homework, and we’re just on top of every situation.

Ben Nolan – Knight Capital

Okay. So even in the case of OSG might, but to still sell to them just because they’re protected by bankruptcy income?

Peter C. Georgiopoulos

Right.

Ben Nolan – Knight Capital

All right. that’s very helpful again, nice quarter.

Peter C. Georgiopoulos

Thanks.

Ben Nolan – Knight Capital

Thanks very much. Yeah.

Operator

(Operator Instructions) We’ll go next to Kevin Sterling at BB&T Capital Markets.

Kevin Sterling – BB&T Capital Markets

Thank you, good morning Peter, Nik and Spyros.

Peter C. Georgiopoulos

Hey, good morning.

E. Nikolas Tavlarios

Good morning.

Kevin Sterling – BB&T Capital Markets

Let me follow-up with kind of bankruptcy question, I know you talked about your gross spread falling sequentially, because of mix, but maybe is part the two function of you guys focusing more on Tier 1 customers, top customers given the weakness in the shipping markets?

Peter C. Georgiopoulos

Well, I mean look, that one we focus on the top, to adopt customers in the top credits. but in this last quarter, we’re definitely as a result of Fujairah that was the main reason that we lost spreading in this last quarter.

Kevin Sterling – BB&T Capital Markets

Okay, thank you. Nick, you talked about the nice bump in lubricants what is going on there and how should we think about that going forward?

E. Nikolas Tavlarios

Once again it’s the continued efforts of the marketing and your brand getting known around the world and our team has done a good job. You can see we are really eclipsing last year’s numbers already due to the third quarter we beat out the full year. So just good traction and we provide a good service and it comes out it’s our marketing.

Kevin Sterling – BB&T Capital Markets

Yes for the cross selling opportunities with what you are doing you’re your core bunkering business and should we think about as we look to next year we think about this type of growth?

E. Nikolas Tavlarios

Here is the deal, our objective always is try to capture 5% of that market. And it takes us time to get known out there and to establish your brand value. We have been working on that for a long time and it’s now becoming more and more recognized. This is not where we want to stop by any means, no we wanted to grow. Again it has probably going slower than we wanted, but I ‘m very happy about where we are. I think it’ll go higher. I can’t give you our rotation cabin has probably to double this number in the next couple of years but to tell you for sure that is going to happen it’s a little bit tough to say, but that’s what we hope for. And that our target is higher than that.

Kevin Sterling – BB&T Capital Markets

Right, right, right. And you say you want to capture 5% of the market. Where are you today it’s too much…

Spyros Gianniotis

Well I would say we are probably around 2.5% of the market right now.

Kevin Sterling – BB&T Capital Markets

Okay, all right. And Nick I think you said you’ve got the sold eight non-core vessels and I think you wanted to continue selling more. How many more would you like to sell?

E. Nikolas Tavlarios

I could see as we’re probably two bunkering tankers older ones that we are going to look to move along and possibly floating storage vessel. And we re-evaluated after that, but certainly, there has been a tremendous amount of efficiency to introduce the company by lowering our expense structure again, you could see it, we’ve done well, really puts in a good position we got more than our best deal with our expansion, right. And knowing that, there’s probably two more, we can move on and we’d still do what we want to do, it doesn't change that. So, yeah, we can definitely move some of these ships out and obviously, it really helps the bottom line.

Kevin Sterling – BB&T Capital Markets

Right. And I think, I guess the strategy here is, you move out these older vessels, you’re operating expenses. and then when the shipping markets do come back, you just have that much more leveraging in models. Is that right way to think about it?

Peter C. Georgiopoulos

Yeah, absolutely right. Yeah we could sell more with each of the ships we have, and we could do more with each of the ships we have, and we don’t need these couple of older ones here. So you’re moving on and the same goes through for that floating storage vessel. We moved that along also. it will be extremely accretive.

Kevin Sterling – BB&T Capital Markets

Right. Okay, great. And you talked about the value of your fleet being well above kind of your book value, if I can dig into that a little bit further. What it caused to buy a new bunkering vessel today? Maybe if you kind of give arms around some number?

Peter C. Georgiopoulos

Taking from the size for the ship, Kevin that’s really one of the questions and a fully equipped vessel coming out of the yard with a lot of equipments probably $11 million on a bigger ship, and probably around nine or so on smaller ones, 9.5 is my guess. And again that will be for a fully equipped ship.

E. Nikolas Tavlarios

And here we note these vessels are chartered out at $6,500 to $7,500 per day. So you can figure out what’s the price of these vessels.

Kevin Sterling – BB&T Capital Markets

Right, right. Okay, thank you. That’s all I had today. Gentlemen, congratulations on solid quarter and a challenging environment.

Peter C. Georgiopoulos

Thanks, Kevin.

Operator

We’ll move next to Chris Snyder at Sidoti & Co.

Chris Snyder – Sidoti & Co.

Good morning, gentlemen.

Peter C. Georgiopoulos

Good morning Chris.

E. Nikolas Tavlarios

Good morning.

Chris Snyder – Sidoti & Co.

So I think I have a question on volumes. So you guys were able to really increase in 3Q compared to 2Q in total volumes despite where shipping environment. And it doesn't seem like Hong Kong had too big of an impact this quarter. So I was wondering what you guys attribute to that increased volume?

E. Nikolas Tavlarios

We view it as slightly increase, slightly higher than last quarter, kind of very similar to it. We did pretty well in just across the board and all ports. Panama, it was a full quarter run. So that's probably the greatest change in what you see going on there. And you know, otherwise, it is-you know generally similar, but good service, and basically as we analyze our client base, it's a large percentage of the repeat clients and that’s something that we do in here as our key performance indicators on how we look at our company too.

Chris Snyder – Sidoti & Co.

Okay yeah. The next question is about Hurricane Sandy, I know this had a positive albeit probably short term but a positive impact on particularly the product tankers in the shipping industry. Have you guys noticed any increase in may be order size in that region as vessels are really in a rush to come over to the Atlantic coast?

E. Nikolas Tavlarios

No, I don’t think so. I mean that probably affects business more than it does us and may be in the U.S. which we were really not serving. So we really haven’t seen that. But on a separate note, there has been an uptake in the tanker market as Peter had pointed out earlier.

Chris Snyder – Sidoti & Co.

Yeah.

E. Nikolas Tavlarios

Yeah, and I can’t say that’s correlated to Hurricane Sandy.

Chris Snyder – Sidoti & Co.

Okay. And my next question is about Barcelona, how – what kind of – is this a market that will have strong spreads or lower spreads and the spreads you guys are currently earning?

E. Nikolas Tavlarios

We think we’ll have strong spreads.

Peter C. Georgiopoulos

I don’t. We think when you look at a range of market this should be at the higher end.

Chris Snyder – Sidoti & Co.

Okay. That was from me thanks a lot guys.

E. Nikolas Tavlarios

Thanks.

Operator

We’ll take your next question from Peter (inaudible).

Chris Snyder – Sidoti & Co.

Good morning guys. Just had a couple of follow-up questions, you mentioned the essential the number of vessels on over the past year end – I thought I had $16 million in annual savings is that correct.

E. Nikolas Tavlarios

Yes it is.

Chris Snyder – Sidoti & Co.

Okay great. And then that has lead to operating leverage – throughout the year and despite that, we got a couple of ports coming online here in the back half of the year and I imagine that the lot of cost that you incur for Barcelona will happen in Q4. You still expect operating expense leverage even with those expenses and be incurred in the Q4, do you have enough (inaudible).

E. Nikolas Tavlarios

No that’s what you said they were going to be done in Q4. That's your assumption, actually a lot of those expenses were in Q3. We told about million bucks for Hong Kong and we had other expenses for Barcelona.

Chris Snyder – Sidoti & Co.

Okay. What do you expect the start up cost before Barcelona.

E. Nikolas Tavlarios

Significantly lower.

Peter C. Georgiopoulos

Yeah. Significantly lower because, we will use (inaudible) so the payments will come. As we use it, we will faith and the vessels we already have.

Chris Snyder – Sidoti & Co.

I mean minimum. Just complexities associated with Hong Kong as a market – some working capital deploy it some in the expenses were working capital.

Spyros Gianniotis

Yeah. I wouldn't the big Hong Kong number was in the third quarter, which is $1 million and I don't have a guess for the fourth quarter of Barcelona

Peter C. Georgiopoulos

To minimize.

Chris Snyder – Sidoti & Co.

Okay. So its needless to say the operating leverage, the cost controls that you are putting in place should win out over any of these extra costs, okay.

Peter C. Georgiopoulos

Yes that’s what we believe.

Chris Snyder – Sidoti & Co.

Okay and you – if you look at the kind of a trend and volume from July through the end of the quarter. If our memory is certainly correct, you said that you delivered 922,000 metric tons in July. Can you kindly give us a – kind of how the quarter played out, and why that happened?

Spyros Gianniotis

I mean the quarter played out 900.2 to probably some of the high eights some were in near average.

Peter C. Georgiopoulos

Sort of flat.

Spyros Gianniotis

Yeah.

Chris Snyder – Sidoti & Co.

Do you think that that was – you guys going to reigning back and Fujairah because of the pressure there or was it something else?

Spyros Gianniotis

Sure I mean again everything was sort of flat. We are not talking about material differences here. So, but again some are between the high 8’s and 9’s margin. Sure Fujairah definitely was something we saw some changes on. But the volumes weren’t so far off- we saw other impacts of Fujairah.

Chris Snyder – Sidoti & Co.

Sure okay. And then so if you guys sort of look at kind of how this disruption in Fujairah has played out. Do you think we’ve moved past the bottom of it. Now we should see things getting back to a more normalized state or where do we stand from maybe say a month ago?

Spyros Gianniotis

Too early to tell for one. Two, more of this kind of stuff has reaches the media as it has. I think the more you see normalcy restored. So, and believe me it was in the media. So

Chris Snyder – Sidoti & Co.

Right. Do you envision I mean obviously this is a unique situation with the sanction and experienced similar or things to this in other market namely Singapore, what gives you confidence that this type of thing, this type of disruption isn’t going to incurred in other markets, especially with the demand for bunker field globally being more immediate than it might have been.

Peter C. Georgiopoulos

Yeah that on an absolute basis the demand for bunker fuel today is still higher than it was a few years back, there is more ships on sea, there is no doubt about it. Yeah, we’re talking about robust numbers with less players out there selling it, so it still on an absolute basis is a very good level.

Chris Snyder – Sidoti & Co.

Okay. Great well thanks a lot guys.

Peter C. Georgiopoulos

Thank you.

Operator

And at this time, there are no more questions. This concludes the Aegean Marine Petroleum Network Inc, conference call. Thank you and have nice day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Aegean Marine Petroleum Network's CEO Discusses Q3 2012 Results - Earnings Call Transcript
This Transcript
All Transcripts