Tsakos Energy Navigation's CEO Discusses Q4 2012 Results - Earnings Call Transcript

| About: Tsakos Energy (TNP)

Tsakos Energy Navigation Limited (NYSE:TNP)

Q4 2012 Earnings Call

April 19, 2013 10:00 am ET


Nicolas Bornozis – President-Capital Link, Investor Relation Advisor-Tsakos Energy Navigation

D. John Stavropoulos – Chairman

Nikolas P. Tsakos – President, Chief Executive Officer and Executive Director

George V. Saroglou – Chief Operating Officer, Vice President and Executive Director

Paul Durham – Chief Financial Officer and Chief Accounting Officer


David E. Beard – IBERIA Capital Partners LLC


Thank you for standing by ladies and gentlemen and welcome to the Tsakos Energy Navigation Conference call on the Fourth Quarter and Year-end 2012 Financial Results. We have with us Mr. John Stavropoulos, Chairman; Mr. Nikolas Tsakos, President and CEO; Mr. Paul Durham, Chief Financial Officer; and Mr. George Saroglou, 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 (Operator Instructions) I must advise you that this conference is being recorded today, Friday, April 19, 2013.

And I now pass the floor to Mr. Nicolas Bornozis, President of Capital Link, Investor Relation Advisor of Tsakos Energy Navigation. Please go ahead, sir.

Nicolas Bornozis

Thank you very much and good morning to all of our participants. This is Nicolas Bornozis of Capital Link, Investor Relations Advisor to Tsakos Energy Navigation. The company released its financial results for the fourth quarter and full year 2012. The press release has been distributed publicly and you should have received a copy of it by now. Should you not have a copy, please call us at 212-661-7566 or email us at ten@capitallink.com and we will email it to you.

Parallel to today’s conference call, there is also a live audio and slide webcast which can be accessed through the Company’s website at the front page at www.tenn.gr. The conference call will follow the presentation slides, so we urge you to access the presentation and webcast.

Please note that the slides and webcast will also be available as an archive after the conference call. Also please note that the slides of the webcast presentation are user controlled, so by clicking on the proper button you can move to the next or to the previous slide on your own.

At this time, I would like to read the Safe Harbor statement. This conference call and slide presentation of the webcast contain certain forward-looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1955. Investors are cautioned that such forward-looking statements involve risks and uncertainties which may affect TEN’s business prospects and results of operations. Such risks are more fully disclosed in TEN’s filings with the Securities and Exchange Commission.

Ladies and gentlemen, at this point I would like to turn the call over to Mr. John Stavropoulos, the Chairman of Tsakos Energy Navigation. Mr. Stavropoulos, please go ahead sir.

D. John Stavropoulos

Thank you very much and good morning to all. Thank you for joining us. Before turning to Tim, I would like to say that all of us in the Tsakos Group are deeply saddened and shocked of the tragic event at the Boston Marathon. As Greeks we feel a special attachment to the Marathon and the Olympics as symbols of pride and fame and endurance. The bombing have reminded us of the shameful attack at the Atlanta Olympics in 1996.

The importance for the human race is that we will overcome these shameful acts. The London Marathon on Sunday and the Boston Marathon’s in the future have confirmed victory over evil. The Marathon will return to Boston with appropriate pride and celebration. The products of long training and experience, the bandwidth endurance will again be applied.

Turning to TEN, the shipping industry is undergoing a severe test. Since it has not escaped the training of 2012, the second consecutive year of losses, also we take solid substantial growing strategy as much as an impact. The managements’ focus on strong liquidity has benefited. The results for 2012 were much in place for the loss of 2011 and the activity thus far in 2013 is very encouraging.

The Board of Directors which met last week is very proud of Nikolas Tsakos and the entire Tsakos team. Their plans for the future give us comfort that our neutral goal of rebuilding and storing the value will all be realized. Thank you. Thank you, Nikolas.

Nikolas P. Tsakos

Chairman, thank you for your good words and from all of us in the meeting, all our condolences to our friends in Boston, now all over the United States, because it has been really a very prime week with events in Texas, this also is very close to us because our oil and transportation business down there and of course Boston and we hope that these will be extreme events this.

Thank you Chairman for your good words. Although it’s not after 20 years, we are likely to celebrate our 20th year as a publically traded company in the New York Stock Exchange. We have been very proud that 18 of those years have been with significant profitability. The two recent years as you mentioned, unfortunately we have not been able to report profits because of the environment around us or however the results of 2012 are significantly better by 45%, better than the results of 2011. And the start of 2013 gives us comfort that we might be returning to profitability sooner rather than later and more surely as an index that we were able to control our new building efforts because I think this market has suffered basically from the oversupply rather from the lack of demand.

And I think as our COO will explain, we are still looking at growth, both significant growth in the transportation of products, significant growth also in the demand for crude. However, having over build this industry we have suffered for the last two years. It seems in 2014, we will be finally getting out of this product supply. However, I think we have to be cautious until all of our friends and colleagues are letting this market with more new buildings.

Our company has been able to take advantage of our long-term relationship enhancement. Even further sign contracts in excess of $1 billion with an average of 3.2 years for our fixed vessels. I think this is a very good position to be. We have diversified fleet. We are perhaps the largest product model for the current fleets in the water. I think there are lot of companies out there that are all building new business for the future for better (inaudible), but I think we have as we reported products now and they are taking advantage as we will see from our results from this environment. Our LNG and Shuttle tankers are also expanding our long-term industrialized shipping business. And at the same time, we believe that we should not be far away that the crews would turn the corner as products they have been there.

I would ask George Saroglou to give us the developments of the last year and the recent events and then we will be happy to answer questions.

George V. Saroglou

Thank you, Nikolas. It is my pleasure to speak with all of you today and provide some of the details of the operation of another quarter and another year. For those of you who are connected to the Internet in our website, there is an online slide presentation. We will follow the format after the presentation during the call.

Let’s turn to Slide number 3, where we see the current fleet which consist of 28 product tankers all of them in the water as we speak producing for TEN. This is one of the largest product fleets in the water operating in a product tanker market, where we clearly see signs of trading profitably. We also have 19 crude carriers and 2 LNG vessels including one in the water and one on earth.

The next slide gives some general market highlights. Global oil demand is modestly growing and currently stands at about 91 million barrels per day, which is at an all time high level. There is increased product demand not enough to offset the new building deliveries especially on the large group carriers, the VLCC and Suezmax. However, the order book is coming down. It’s 11.1% at the end of 2012 versus 14.4% at the end of 2012 and 2013 looks to be the last year with a big delivery schedule.

The dramatic events of the cold weather in the Northern Hemisphere played its part again this winter with ice-class crude outperforming the general market. Just to give you an example, (inaudible) is the main ice-class crude was in the area and above the 100,000 levels for about a month and of course we had to highlight for that tankers which continue to operate in an improving phase of market environment.

2013 marks the fifth year of the straight market downturn. However based on what we see and the continuous appetite of major (inaudible) forward, we think the worse is behind this.

If you look at the corporate highlights, TEN has a pro forma fleet of 49 vessels. This figure includes 47 vessels in operation; 1 DP2 shuttle tanker under construction, we would expect to deliver it next week; and 1, Tri-fuel LNG vessel under construction with options for one more. The fleet is 100% double hull, way more than 6.5 years average age and 21 tankers with ice-class capabilities and 31 vessels out of the 49 vessel fleets have several employment that ranges from 1 year to 15 years.

Thanks to time toughest philosophy, we continue to operate fleets at a very high utilization rate. 99.1% for the fourth quarter 2012 and the average for the tanker industry is around 85%.

Moving to the next slide, here we have a highlight of our press release, nine-fold increase in operating income, 45% improvement in net results. We have maintained a strong balance sheet, and strong cash reserves. We have further expanded in the LNG sector with chartering of our Neo Energy and the order for one option tri-fuel vessels. We have re-chartered nine vessels during 2012 with minimum tanker revenue in excess of $2013 million and we have sold two VLCC’s which were the companies for this vessel.

The next slide, results of corporate fleets as it stands right now. In TEN, we focus in three market sectors; conventional tankers which covers both crude and product tanker; LNG; shuttle tankers. Our core market, LNG and offshore shuttle tankers are potential growth carriers for TEN due to their growth prospects, favorable supply demand fundamentals and buyer centric.

Within conventional tankers, TEN operates both crude and product tankers. We have one of the largest and most modern product tanker fleets in the water now, which is of course taking advantage of an improving phase market environment. We now begin the ice-class capability of our fleets and we have taken delivery of the first and next week of the second of the first two [Greek flag] shuttle tankers which we are going to be fix the testing fixed 15 year bank charter via major oil companies in South America.

We have one LNG in the water and one Tri-Fuel under construction plus enough, since 1997, the fleet that you see in this page was build exclusively with new building orders in Korea and Japan.

Let’s look at the employment slide, how the fleet in employed. We continue to have a balance employment strategy with a corporate fleet to a mix of both Tsakos pooling arrangements and tedious process with fixed rates and profit sharing arrangements. The product fleet out of 28 vessels, we have 19 that operate in tank charters with fixed and profit sharing arrangements, and 9 vessels operates in the spot market. So out of 19 vessels with fixed employment, eight have profit sharing arrangement. So if one adds to this eight vessels and 9 spot rating vessels, you have 17 product tankers that already take advantage of an improving product tanker phase environment.

On the good side, we have 19 vessels in which 11 of them have been fixed and 8 vessels still in the spot markets, mainly the seven Princess series aframax’s and one suezmax tanker. Out of the 19 crude tanker, six operates in fixed time chartered and have still in combination of market related COA’s, Spot voyages and full arrangements. The slightest improvement in the spot market for aframax tankers will go straight to the company’s bottom line.

Looking at dollar value on the above and the next slide, slide number 7, as you can see today we have paid 62% of the remaining available 2015 fleet operating days and 48% of the available 2014 fleet operating days. Assuming only the minimum rates, TEN has secured 1,179 months of forward employment or 3.2 years per vessel and other $1 billion in minimum gross revenue.

The next slide is a company’s track records in sale and purchase activities in 2003. Key takeaways is the sale and purchase activities are an integral part of our operations of this record show and fleet modernity is a key element of the so called traffic.

Since the New York Stock Exchange listed, we have generated capital gains for approximately $280 million or an average $28 million per year. The company has invested those capital gains in the yield of the fleet by ordering the majority of these new building tankers before new building prices started to arise.

The next slide is a dividend slide and this slide shows the history of our cash dividend distribution. We announced today a dividend of $0.05 per share to be paid on June 5. In total, since 2002, we have paid $9.53 in cash dividends or approximately $376 million and this compares with a listing price in our IPO of 2002 of $7.50 which has been adjusted for the November 2007 2-1 split.

TEN has raised from the equity markets a little over $510 million in the 20 years since the company’s inception in 1993 and has returned since 2003 to the company’s shareholders $82.5 million in the form of buybacks and $376 million in the form of cash dividends. So almost 90% of the raised equity funds have been returned to the company’s shareholders and today those forms the stock on a company with a modern fleet of 49 vessel with great customer and banking relationships and growth initiatives in the LNG offshore shuttle tanker market sectors, a company that is well positioned in conventional tankers with two important product tankers that are ready to take advantage of the market’s expected recovery.

That concludes the operational part of our presentation. Paul will walk you through the financial highlights of the fourth quarter and the year. Paul?

Paul Durham

Thank you, George. As you see from our press release we ended another tough year with some promising signs with a 45% improvement in results for the 2011 and a good start to 2013 in terms of charters. While our return to profitability was not on the cards of 2012 at least the possibility of a return in the near future became greater.

Excluding our internals and small loss on vessel sales, the quarter total loss was $9 million, half of that of quarter four 2011 and operating income was positive at $4.8 million compared to $2.9 million operating loss in last year’s fourth quarter. Similarly for the full year, the net loss before impairment and capital loss was $53.8 million compared to $55.1 million loss in 2011.

Operating income again excluding both impairments and capital losses or gains was $16.7 million compared to an operating loss of $3.3 million last year, a very encouraging sign. The factors that boosted quarter four and 2012 earnings in comparison to the previous periods were, firstly the disposal of the VLCC which in 2011 incurred heavy voyage expenses in a difficult stock market. These vessels were inactive in quarter four and indeed inactive for most of 2012.

The LNG carrier enjoyed a significantly higher rate in quarter four and in 2012. There was a boost in product carrier rates especially for the smaller carriers, with a expiry of half of our interest rates loss, which were a significant burden in recent years. And we kept control of the level of our expenditure.

We were obliged to incur an impairment charge of $13.6 million on our last VLCC Millennium. Answers became clear after the expiry later of this year of the existing long-term profitable charter, the market for such vessels would most likely not justify its book value.

Quarter four rounded average daily TCE of time charter equivalent per vessel was $17,200 compared to $15,750 in quarter four 2011 and for the 12 months period, $17,160 against $16,050. Such levels surpassing briefly them again with several of the smaller vessel.

Excluding the non operating VLCCs, only five vessels, all crude carriers did not generate positive EBITDA in quarter four. For the year, all but one of the operating vessels achieved positive EBITDA. Total EBITDA amounts to $29 million in quarter four. And for 2012, $117 million was achieved.

Quarter four operating expenses remained relatively unchanged at $32.5 million with approximately the same fleet size, hence the daily average per ship was also little changed at $7,545 was about the same for the year.

Finance cost in quarter four was $13.8 million, a 6% fall from quarter four 2011, mainly due to reduced swap interest payments due to expiry of swaps, which also resulted in reduced finance cost for the year.

In quarter four we repaid $57 million in loans including the prepayments from the sale of La Madrina. We received $28 million in new loans. So, total outstanding loans at the year end was $1.44 billion and net-debt-to-capital was 58%. The new loans related to the two shuttle tankers under construction, being pre-delivery financing of the buildings loan. This left $47 million each to be received on each vessel, the first of which happened in March with the delivery of Rio 2016 and the second will be received next week on delivery of Brazil 2014.

While these vessels were not available to provide a contribution in quarter one, they will clearly do so for the rest of 2013. Nevertheless, quarter one, without the old VLCC’s and with higher product rates should result in a further improvement over prior periods. And this concludes my comments. And now, I will hand the call back to Nikolas.

Nikolas P. Tsakos

Thanks Paul. These were positive note I hope and we would like to take this opportunity and open the floor for any questions from our listeners. Thank you very much.

Question-and-Answer Session


Thank you. (Operator Instructions) Our first question comes from the line of David Beard from IBERIA. Please go ahead.

David E. Beard – IBERIA Capital Partners LLC

Hi, good morning gentlemen.

Nikolas P. Tsakos

Good morning.

David E. Beard – IBERIA Capital Partners LLC

Would you mind just reviewing your charter policy and if you intent to leave to be more spot or more fixed going into 2014-2015, just given were obviously close to the bottom than the top of the markets?

Nikolas P. Tsakos

Sure, as I said we have a mixed policy even where we’re using a lot of our long-term relationships in order to secure business with profit sharing. So as we speak today we have about 62% of our business is fixed or then with profit sharing or fixed time charters and the remaining 38% is on the spot market.

David E. Beard – IBERIA Capital Partners LLC

Okay, thanks. And maybe just talk a little bit about scrapping rates and what your outlook is and then now that varies quite a bit from your different product categories, but given where rates are what is your outlook on scrapping?

Nikolas P. Tsakos

Well, we expect the scrapping to maintain its trend. So, I mean, it will always be between $400 and $500. We will see a big level for the largest vessels. And so I think that this way, we are seeing a significant scrapping. So far about 8 million dead weight tons for year-to-date have been scrapped. So, I think we’ve increased scrapping. And also with this finally decreasing new building order book, we would be certainly seeing a much more balanced market. We’ve seen this. We must starting from the products but also going forward towards the goods carriers.

David E. Beard – IBERIA Capital Partners LLC

Okay, great. And maybe my last question just focused on LNG for a second because there seems to be a lot of short-term concern over weakness and spot rates. Would you just talk about what you see in the spot market and does that change your longer-term view on LNG?

Nikolas P. Tsakos

No. I think the opposite. Today, I mean we have seen all our vessel is fixed for another three years at $80,000 unchanged, which is a very substantial, I mean, it’s a very comfortable rate, since we have about $30,000 breakeven. So, this was in fact a lot of to our bottom line. Today we have this vessel and it’s spotted to learn closer to $100,000. It’s correct, but perhaps six months ago, it would have been $150,000, but I think at this level the market is still strong. The only reasons for concern are the delays or the value assumed with infrastructural trades and product that might lead to have a delay in the demand for transportation, but that’s closer to 2014 and 2015. However if you put the overall picture, I think the existing order book is not sufficient to cover the agreed need for the transportation.

So in general, it’s a positive picture, but of course there are some delays that, correctly as you said make it take some time until the supply and demand become balanced.

David E. Beard – IBERIA Capital Partners LLC

Okay, good. Thank you very much for your time. I appreciate it.

Nikolas P. Tsakos

Thank you, David.


Thank you. Our next question comes from [Mathieu Stephen] from Morgan Stanley. Please go ahead.

Unidentified Analyst

Hello gentlemen, thank you very much for the information you gave. So you mentioned that you wanted – that you were urging for restraint in the business. And so I was wondering, if you had any new acquisitions planned or and if yes, which sector you will be looking at?

Nikolas P. Tsakos

Well, I think that (inaudible) for your question, we have our acquisitions in the shuttle tanker, and the LNG, so most specialized vessels without excluding vessels conventional tankers so that our clients will require us to buy something, so which means that they will have a good employment. We are way away from the top of the market of these new building the second enterprise market, so I think in today’s market if we find opportunities we will move.

Unidentified Analyst

Okay, great. And so how would you if any new acquisitions how are thinking of financing and how would your see the financing market right now? What are your thoughts – like raising new capital through growth or external (inaudible) for equity or high-yield bonds maybe?

Nikolas P. Tsakos

For us I think our COO gave the presentation on how – I think a surprise right now has been battered almost as 50% down because mainly (inaudible), and this unfortunately has to do because the majority or a big part of our peer group has had difficulties. And I think if you have companies like always do this has been considered.

I think that the table was on peer group that has unfortunately filed less amount for charter 11. We used to say that, always give the dividend or [ARPU] and in shipping, so if you have the filing and two other companies which offers. So a surprise for no reason that has to do with us, it’s almost been an amazing by today’s 50% of its value a year ago. And a year ago the market was much worse than it’s today, so you know in such logic we cannot issue shares that is very diluted, 11 of course the company is looking at other ways. There is still companies like us with solid projects. There is still ample bank debt, we just financed two shuttle tankers, very good terms close to 80% and very competitively. So I mean, as long as we have the projects, we’re going to be able to finance them through bank debts and the cash flows of the company is building up.

Unidentified Analyst

Great. Thank you very much for that. And on a previous call you mentioned the possibility of creating an MLP with your vessels along the charter. Has there been any progress on that front and what would be timing for that?

Nikolas P. Tsakos

I think the MLP is something we are very closely considering and I think the timing is within this year.

Unidentified Analyst

Okay, within this year, great. And so, we talked about this earlier, the suezmax and the aframax rates, with perform rates should be well during the last couple of months despite the depressed VLCC market. So what do you attribute to that and how does the trade look like in the second quarter, the last couple of weeks the suezmax rates have shown to be heading lower?

Nikolas P. Tsakos

Well, I think the uncertainty in terms of the VLCC they are going to be the last vessels to react because of the size. The market right now is really based a lot on tradable flexibility. So as long as this is left, the aframaxes and the suezmaxes have been preferred by charters that would rather take a risk on 1 million barrels or 600,000 barrels rather than using of 2 million barrels.

Unidentified Analyst

That makes sense. Okay. And, then one last question, can you maybe talk to us about the ship building market, what kind of developments have you seen in the last couple of years and how do your ships compare in terms of daily earnings compared to the newly designed eco ships that everybody is talking about that are being delivered right now?

Nikolas P. Tsakos

Yes, this is a very good point. And as I said, I think our fleet is a very young fleet and I think any – and we’re talking right here for the product carriers and the aframaxes. I think the super eco versus one that will be correct in design are going to make a lot of sense from high speed vessels, but then huge amounts. So I think they will make sense on 8,000 TEU or 10,000 TEU container. They might make sense going forward on VLCC’s because of the shear size of the vessels. But for the mainstream shipping, I think any vessel would just spend years of anchor by spending a minute percent of what you need to spend on a ship as a new building, you can achieve very similar results.

And as earnest, and I am the Vice Chairman of Intertanko, which actually represent all the independent tanker owners. We put question because there is a lot of demand floating around (inaudible) not just the flavor of the manufacturers to be the Super Eco Ships. I am afraid that this first generation of Super Eco Ships, those who understand modern technical side, we will be very similar like the first generation of the double/double ships. When we start upgrading in double/double, most of those ships were build without the center line bulkheads, and the end of that being on trade after two or three years.

So like everything, this first generation of vessel, we are not going to enter and actually add the insult to injury by building ships. Because all our ships right now are more than enough and as economics, as the capacity for first generation Super Eco Ships that people are building left and right and unfortunately we will get the market.

Unidentified Analyst

Great. Thank you very much for that Nikolas, and that was my last question.

Nikolas P. Tsakos

Thank you.


Thank you. (Operator instruction) Thank you. There are no further questions at this time. Please continue.

Nikolas P. Tsakos

Well, again thank you very much for following our company. As I said, we believe that there are strong signs which we could not talk about a year ago, but the market following the return of the product carriers in good level, so the two carriers hopefully will see signs of their falling. Then huge appetite for all our major clients and then is not in operation in chapter six to the major (inaudible) injunction, if you follow a last couple of months, we have done a lot of business like with the first class names and all of the relationships. So there are signs that the market is normalizing.

And we believe right now we are at service is really well competitive priced to show you the list and we hope that we will be able to come back to profitability sooner rather than later. The indications of the first quarter are positive, but still does not allow me to say too much about that until we see relative calculations. But I have to say we are in a better environment than we were a year ago in all respect.

So thank you for your patience. As I said we have the 18 profitable years, two negative years and hopefully we will be able to come back to profitability. Chairman, would you like to add something?

D. John Stavropoulos

Thank you. And again, all of you Boston and Texas and all over the United States, of course we’re with you and we will be visiting the United States soon to talk to our shareholders face to face. Thank you.


Thank you. That does conclude our conference for today. Thank you for participating, you may all disconnect.

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