Avient Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
September 7, 2023

There are 8 speakers on the call.

Operator

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. Daki Areopoglou, Chairman of the Board I'm sorry, Doctor. Nicholas Tacos, President and CEO Mr. Paul Durham, Chief Financial Officer and Mr.

Operator

George Serkul, 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. I must advise you that this conference is being recorded today. And now I pass the floor over to Mr.

Operator

Nicholas Bornozis, President of Capital Link, Investor Relations Advisor of Tsakos Energy Navigation. Please go ahead, sir.

Speaker 1

Thank you very much and good morning to all of our participants. As the operator mentioned, I'm Nicolas Bornoiz Capital Inc. 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 Doctor. Irene Saroglou Tsakos, Nicholas' beloved mother, a distinguished figure in Greek shipping, who is also known as the Doctor of Shipping.

Speaker 1

Doctor. Irene Isaroglu Tsakos, She co founded the Tsakos Group and pioneered naval medicine passionately authoring medical literature and caring for seafarers and their families. So you received numerous prestigious tributes from institutions like the Academy of Athens, the Hellenic Foundation of Cardiology, Euro Classica and many, many others. And again, our condolences to the Tsakos family. And now I will proceed with the conference call.

Speaker 1

This morning, the company publicly released its financial results for the Q2 6 months ended June 30, 2023. In case you do not have a copy of today's earnings release, please call us at 212 6,617,560 or email us at 10capitallink.com and we will 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 Go to the previous slide on your own.

Speaker 1

At this time, I would like to read the Safe Harbor statement that 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 1995. Investors are cautioned that such forward looking statements involve risks and uncertainties, which may affect TEN's business prospects and results of operations. And before passing the floor to Mr. Tagus Arnappleou, the Chairman of the Board, I would like on a happier note to say that we hope to have Doctor. Tsakos with us in New York more often, now that his 2 daughters will be attending Columbia University.

Speaker 1

And on another happy note To remind everyone that Tracos Energy Navigation is celebrating this year, the 30th 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 Sarapoglou, the Chairman of the Board of

Speaker 2

Thank you. Thank you, Nicolas. 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.

Speaker 2

Management needs to be thoroughly congratulated. They are making best use of All opportunities in the spot and time charter 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 we've continued paying dividends, Returning directly or indirectly value to our shareholders. We feel that It is appropriate with this excess liquidity to continue refreshing the fleet, selling old stock and Buying new state of the art vessels, which we do.

Speaker 2

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 I'll pass on the floor to Nicolas Sarkozy.

Speaker 3

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 1st 6 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 The equation allows us to envision 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 2 or 3 years down the road with very positive returns, plus profit sharing and also transactions that happened in the last week.

Speaker 3

VLCCs went out for a relatively modern VLCC was charter for a 3 year period in excess of $50,000 close to $55,000 a day. This is the highest rate on a period we've seen on a VLCC charter for since 2,008. And that's so it's been a long 15 years to see something like that and that was from a major oil charterer. So The prospects are good. As Nick Bornozis kindly said, we've been around for 30 years and we're planning to be around For a few more years, the Tarver's Group is the major shareholder in this and we are Driving the boat hopefully to safer and wealthier harbors as we go forward.

Speaker 3

It's been the 1st 6 months we took advantage of the timely sale of Our 1st generation vessels, we are replacing them now with green in our 10 ship green initiative. I would 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 are keeping a very conservative balance sheet As always, TEN has never stopped paying a dividend in our 30 year tenure. 20 years now we've been on the New York Stock Exchange.

Speaker 3

I think we have made profits in 2,500,000,000 Dollars and distributed $530,000,000 in dividends, in common dividends and on top of close to 800 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 2 College tuitions at an Ivy League University have to work harder and be in New York more often to get the share price higher And with that, I will ask George to give us a little bit of the background of where we how we have come and then we can answer questions Together, Paul will give us the financials.

Speaker 4

Thank you, Nikos. Good morning to all of you joining our earnings call today. 2023 is a year we celebrate our 30th anniversary as a public company. We reported this morning the unaudited financial results for 2nd quarter and first half of twenty twenty three. Assuming no change in the market conditions during the second part of the year, more probably 2023 is going to be as good if Better than 2022, which was the best year since the company's inception.

Speaker 4

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 replaced with oil from the United States, West Africa, 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 newbuildings 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 post COVID global recovery and more recently by strong summer air travel, increased oil use in power generation And surging petrochemical activity in China.

Speaker 4

The latest focus forecast from the International Energy Agency Continue to have global oil demand growing by 2,200,000 barrels per day this year to a figure of 102,200,000 barrels per day in 2023. We realize 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. However, the global economy is expected to continue growing in 2023 by approximately 3 And by the same rate next year, oil demand is growing and tanker fundamentals continue To favor a strong tanker market for the next 2 to 3 years. Let's go to the slides of our presentation.

Speaker 4

Starting with Slide 3, we see that Since inception in 1993, we have faced 5 major crisis 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 and aging fleet And post COVID oil demand recovery, even without the tragic war, were positive for our industry. The Western sanctions and price cap Import on 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.

Speaker 4

At the same time, U. S. Crude oil exports have gone up from averaging about 3,300,000 barrels per day last year to about 4,100,000 barrels In Slide number 4, 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 offering since the company New York Stock The first three preferred series totaling $188,000,000 of par value, The Series B, C and B, plus a privately placed preferred instrument of $35,000,000 initial par value have been fully redeemed as we speak, saving the company in excess of $18,000,000 per year of coupon payments.

Speaker 4

In Slide number 5, 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% of the fleet in the water with market exposure and combination of spot, Contract of affreightments and time charters with profit sharings. 44 out of these 68 vessels or 76% are in secure contracts, Fixed time charters and time charters with profit savings. This means that TEN is well positioned to continue capturing the positive tanker market fundamentals.

Speaker 4

Any divestment of aerial generation vessels as we have done in the Q1 of this year with the 62,005 built MRs And the 2 2006 built Handysize product tankers will be replaced with modern, eco friendly, greener vessels. TEN has currently a new bidding program of 10 tankers consisting of 2 shuttle tankers for delivery during 2025, 4 dual fuel Aframaxes for delivery starting from the second half of this year. In fact, the first one will be delivered to us later this month. 2 eco friendly scrubber fitted Suezmaxes for delivery also in 2025 and as announced today, 2 scrubber fitted MR tankers For delivery in early 2026. Except for the 2 Suezmaxes that will be delivered after 2 years and the 2 MRs, The rest of the company new buildings have been fixed forward against medium to long term time charter.

Speaker 4

In the next slide, We see the company's current and long term clients. As you see, we have blue chip customer base Consisting of all major global energy companies, refineries, commodity traders with Equinor currently topping the list In Slide 7, the left side present the all in breakeven cost for the various vessel types we operate in TEN. Our operating model is simple. We try to have our time charter vessels generate revenue to cover the company's cash expenses, which means paying for the vessel operating expenses, finance costs, overheads, chartering costs and commissions and let revenue from the spot trading vessels contributed to the profitability of the company. Fleet utilization in the first half of the year amounted to 95.3%, which is a very strong number.

Speaker 4

And thanks to the profit sharing element for every $1,000 increase in spot rates, the impact Annual EPS is plus $0.17 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 Fixed in December of 2016. Since then, we have repaid $378,000,000 of debt and redeemed $211,000,000 in 3 series of public preferred shares plus a privately placed preferred interest. Slide 9 has a snapshot of the company's financial performance since 2004.

Speaker 4

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 and the strong cash reserves that we have maintained throughout. In addition to pay down debt, in Slide 10, we see that dividend continuity is important for common shareholders and for management. Penn has always paid a dividend in the respective of the market cycle. Our dividend policy is semiannual. We announced today that the total dividend for the year will be $1 per share.

Speaker 4

That's 5% yield basis the closing of share price last night. To break this $1 down, we have already paid $0.30 on June 15. Another $0.40 which is a special top up will be paid on October 26 to shareholders of record as of October 20 And the final $0.30 will be paid in December at a date that will be announced later in the year and closer to the December distribution. The $1 that will be paid this year is 4 times the $0.25 we paid in total last year. Following this year's last dividend payment in December, the company would have distributed in excess of $528,000,000 to its shareholders since the initial listing in 2002 or on average about $25,000,000 per year.

Speaker 4

In Slide 11, global oil demand continues to grow. Despite financial and geopolitical headwinds, International Energy Agency expects global oil demand to grow by approximately 2,200,000 barrels per day this year To 102.2 in 2023. It's going to be a record year with most of the growth coming from the Asia Pacific region and mainly China. On the supply side, most of the growth in 2023 is expected to come from non OPEC Countries like Brazil, the United States, Guyana, Canada, Mexico and Norway. In Slide 12, as global oil demand continues to grow, let's look at the forecast for the supply of tankers.

Speaker 4

The order book as of August stands at less than 6% or 3 38 tankers over the next 3 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% is over 15 years. 7 12 tankers or almost 13% of the fleet are currently over 20 years. The next slide shows the scrapping activity since 2018.

Speaker 4

For this year, scrapping is low, but we have upcoming regulations An industry with decarbonization initiatives and more than 12% almost 30% of the fleet being over 20 years. We believe scrapping is going to pick up. Overall, all these factors point to a balanced tanker supply market for the next few years. And with that, I will ask Paul to walk us through the financial highlights for the Q2 and first half of the year. Paul?

Speaker 4

Thank you, George. So

Speaker 5

we're looking today at a 6 month period and a 4 month period. So in the 6 months of June, the company earned net income of $240,000,000 An increase of 106 $1,000,000 from the prior 6 months. Revenues totaled $483,000,000 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 6 months. In the 6 months, EBITDA increased to $356,000,000 Adding to the company's cash reserves. In the 3 months of June, the company gained Net income of $61,000,000 helped by a stronger U.

Speaker 5

S. Economy than in the earlier months. Revenues in the 3 months amounted to $220,000,000 a 2% increase with operating expenses at a similar level as before. Time charter revenue in the 3 months amounted to $137,000,000 while total spot revenue amounted to $84,000,000 Our profit share also contributed $24,000,000 in the quarter. In the 3 months, Vessel voyage expenses fell by 40% due to the prior 3 month period as expenses decreased due to lower bunker costs.

Speaker 5

Total vessel operating expenses stayed at the same levels as did the previous year's 3 months depreciation and amortization. In recent months, We have been successful in redeeming large amounts of preferred stocks totaling over $107,000,000 which has already resulted in a generous benefit to our bottom line that will continue over the future. Over the past months, 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 3 months and to the 6 months, There will be an SEC filing shortly that will provide considerable extra detail for our shareholders and auditors.

Speaker 5

Now I'll pass on to

Speaker 3

Nikolas.

Speaker 1

Nikolas, the floor is yours.

Speaker 3

Operator? Noam here. I was actually on mute listening to Paul's achievements. So I'm back on. I'm back on.

Speaker 3

And Paul, keep on panning up the numbers. I think the gist out of what we have said is that We made in 6 months $240,000,000 Hopefully, it will increase significantly for the year. And out of which $135,000,000 or more $1,000,000 has been distributed In one way, 30 of it into common share dividends 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 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.

Speaker 3

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 $100,000,000 of our net income has gone into green double fuel vessels. And I think as George described a very, very demanding exciting new building program going forward. So, I mean, we put our money where our mouth is.

Speaker 3

Is this the expression? Okay. And we're going forward. Now with a much more Simple and easy to navigate balance sheet, we will be able, I think, to increase Our dividends for common shareholders also going forward. It has been Since the end of June, we took advantage of the strong market.

Speaker 3

We have increased our business. We have made 8 new charters. We have extended that surprisingly for many Very high levels on our LNGs. We're looking at 6 on daily 6 Figure daily hires on those ships. So we will be pleasantly hopefully surprised going forward For the 9 months and the year end, I think this would be for sure another record year.

Speaker 3

And hopefully 2024, If the predictions are right, could be even a better year. But anyway, I think we are in much And with that, I would like to open the floor for any questions. Thank you.

Operator

Thank you. Our first question comes from the line of Omar Nochta with Jefferies. Please proceed with your question.

Speaker 6

Thank you. Hey, guys. Good morning. Good afternoon. Always a fun and exciting update from the TEN team.

Speaker 6

I wanted to ask about your fleet makeup As

Speaker 2

it is and how it could

Speaker 6

be going forward. Recently your crude tanker exposure has risen as a result of selling some of the older product tankers, but also taking delivery Of your more modern crude vessels. You've just placed the orders for 2 scrubber fitted MRs. Is this the beginning of an expansion cycle? We will pretend And maybe bring the fleet back into balance of the Syncrude and product?

Speaker 3

Yes. Thank you. Thank you very much, Omar. Yes. I mean, we took the timely decision for an unblocked sale of a large number of our 1st generation vessels that Served us amazing well.

Speaker 3

When we did those deals back in the 15 years ago when we Build those ships. We were the largest ice class operator. We took advantage of that period. And those ships really We're sold almost at the same price as we bought them 15 years ago. And I'm talking about the 8 vessels that we sold in the first 6 months of the year.

Speaker 3

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 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.

Speaker 6

Okay. Thank you. And then Yes, you mentioned the dual fuel and you've got the you have the Aframax 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 say the product tankers?

Speaker 6

And then would you order ammonia ready Shifts or would you wait until the ammonia becomes maybe more viable or truly tool during the construction process?

Speaker 3

This is the $1,000,000,000 question that we're It reminds me of the vaccines for the COVID. You never knew if we should do Pfizer or if we To do Johnson and Johnson or more then. So thank God we do not have any disease. But I mean, we follow the lead of our clients. An ammonia ready vessel It's really it's a $1,000,000 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 ourselves not wanting to put our seafarers Without risk and of course the seafarers unions, I think are not looking at ammonia as a happy alternative.

Speaker 3

On the other hand, methanol, which is somewhere in 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 has answered your question, but I said that our new building department plus our clients, we are looking very closely to the alternatives going forward.

Speaker 6

Thank you. Definitely, Nick. That's helpful. And maybe just one final one for me, Just on the 2 MR newbuilding, 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, You keep them on the spot, great.

Speaker 6

Just wanted to get a sense of how your how these ships are looking in terms

Speaker 3

of Well, if you look at our Yes. Currently, we have 10 vessels being built. And I mean, you will see that Out of the 10 vessels, 6 are already with long charters and profit shares and very accretive transactions. Then we have the Suezmaxes, which I'm very excited about, and of course, the MRs. So we are keeping those ships I would say to play with the market.

Speaker 3

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.

Speaker 6

Got it. Okay. Well, thank you. Thanks, Nick. Thanks, team.

Speaker 6

I'll pass it over.

Speaker 4

Thank you.

Operator

Thank you. Our next question comes from the line of Clint Mullens with Value Investor Edge. Please proceed with your question.

Speaker 7

Good morning. Thank you for taking my question. I would like to start by asking about G and A, Which increased significantly quarter over quarter. Could you provide some commentary on the drivers behind the increase? And how should we think about G and A going forward?

Speaker 7

Should we expect it to return to the $7,000,000 $8,000,000 range?

Speaker 3

Well, Our G and A, 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 discussed about We are organizing a huge part of our organization against cyber attacks, having a new State of the ad 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.

Speaker 5

Thanks for the color.

Speaker 7

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?

Speaker 3

Yes. This has always been our strategy. We pay something in June. We pay June December Are they steady dividends? And in occasions like now when we have Very good earnings.

Speaker 3

We will be topping that up. So and this has If you look, I think George, Mr. Zaroglou 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.

Speaker 7

Thanks, Ed. 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?

Speaker 3

We will as it is not on the top of the list and I think We refer to it into our press release. Our priority is, of course, to reduce our debt. Then our perpetual preferreds is another priority to reduce. And of course, our main This is to replace the fleet and to increase the dividend. And after that, we might consider, but As you know, we only have 30,000,000 shares outstanding.

Speaker 3

The management and the Tsakos family All know 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.

Speaker 7

Makes sense. That's all for me. Thank you for taking my questions.

Speaker 5

Thank you.

Operator

Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Doctor. Tacos for any final comments.

Speaker 3

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 I 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.

Speaker 3

So I think 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 will not we're not 1 quarter minded Companies will not do things just to make investors happy for the next quarter and then surprise them on the following one. [SPEAKER MIHAEL POLYMEROPOULOS:] We'll look at things more longer term.

Speaker 3

And we want to thank you for your support. As Nick Bornozzi said, we will We're 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 so 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.

Operator

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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