Thank you for standing by, ladies and gentlemen, and welcome to the TACoS Energy Navigation Conference Call on the Q1 2020 Financial Results. We have with us Mr. Takis Adepoglou, Chairman of the Board Mr. Nicholas Takis, 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. I must advise you that this conference is being recorded today, Thursday, 11th June 2, Thursday, 11th June, 2020. And now I'll pass the floor over to Mr.
Nicholas Brounozis. Thank you, President of Capital Link Investor Relations Advisors of Tacos Energy Navigation. Please go ahead, sir.
Thank you very much, and good morning to all of our participants. I am Nicolas Bornoides of Capital Link, Investor Relations Advisor to Tsakos Energy Navigation. This morning, the company publicly released its financial results for the Q1 of 2020. In case you do not have a copy of today's earnings release, please call us at 212-126-6175-766 or email us at 10capitallink.com, and we will have a copy for you emailed right away. Please note that parallel to today's conference call, there is also a live audio and slide webcast, which can be accessed on the company's website on the front page at www.tenn.
Zr. 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 this means that by clicking on the proper button, you can move to the next or to the previous slide on your own.
At this time, I would like to read the Safe Harbor statement. This conference call and slide presentation of the webcast contain certain forward looking statements within the meaning of the safe harbor provisions 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 at this moment, I would like to pass the floor to Mr. Takis Arapoglou, Chairman of Tsakos Energy Navigioso.
Mr. Arapoglou, please go ahead, sir.
Thank you, Nicolas. Good morning and good afternoon to all. I hope that you and yours are all well and staying safe and healthy. Exciting Q1 results, once more delivering consistent justification of 10 operating model. As we've said many times in the past, a model that provides stability of earnings at all times and flexible enough to capture all market opportunities as they arise.
This, coupled with best in class cost containment and an impeccable health and safety record, allows us to comfortably meet our obligations, reduce debt and as you've seen, increase our originally declared dividend by 50%. All this, we believe, is gradually beginning to be reflected in our stock price, which is, in any case, expected to benefit from our announced reverse split, as it will make our shares, we hope, more attractive to a much broader professional investor audience. Once again, congratulations by all to Nikos Tsakos and his team. We wish them continuation of the good market and greater success for the rest of the year. Thank you.
And over to you, Nikos.
Thank you, Chairman, and good morning to all of you. It is really very nice and I think to be able to be in touch with you again after 10 weeks where we had earnings call, I think a lot has gone under since then. A lot of us have experienced unprecedented periods. And many of us have had a lot of, I would say, pain within the family due to the COVID virus. We had our last meeting, last discussion on March 24.
And at that time, I think we were in the beginning of a very uphill battle as far as personal issues. But for us, other than the personal issues, very important has been the safety of the 2,000 seafarers on board the ships all over the world that has, I have to admit, has made all of us grayer and wiser these last 10 weeks. But we are happy to announce not only that we were able to operate in this unprecedented time with 97% efficiency, but also not to have and I knock on wood because it can happen at any minute, a single case of the virus in any of our vessels. So I think with that in mind, we not only we had a very profitable quarter, but more importantly, a healthy and safe quarter for all. And I think going forward, we believe that TEN has been able to navigate since the 28 years that we've been on the public markets for very significant extraordinary crisis, not crisis coming out of shipping really.
But I mean, we started with the Far East crisis that the older crowd around would remember between 90 6 97 And that was, I would say, the helter skelter of our development and our big new building program. So the company came much stronger than that. Then in 2001, for 2 years, we had the 9eleven crisis that really stopped a lot of world trade and put all of us in shock. But again, the company was able to come out of that even stronger with a significant growth. And then in 2,009, the credit crisis, which really with the oversupply of tonnage, it was just starting to come out at the end of 2019 when we started enjoying finally a balanced market and then we were hit with COVID.
So but again, I believe that we have placed the company in a model that can navigate successfully and profitably this crisis as we are proving and we are looking at this where health is the most important part of it, not the financial crisis. I think it's a human factor is the most important as a new starting point in 2020 for the company to go forward. We believe that the fundamentals of our industry are very strong. We believe that this crisis could, when it turns around, we could have a reship recovery. The order book in comparison, the order book for those of you around, you should remember in 2,009 was about 40% of the world's fleet was on order in 2,009, less than 11% of the world's fleet is on order today, 50% of the newbuilding capacity of 2,009 has completely been eroded and has been closed down and the world is growing.
In 2,009, we have an immediate 5% reduction of seaborne trade. The immediate seaborne trade reduction in the last couple of months was at 2%, and I think we are rebounding from that. So this gives us a very good chance that we are going to be seeing strong fundamentals for 2020 and forward. What we did during this period, we took advantage of the crazy rates of March April in the middle of long isolations and walks all over the parks to charter our fleets instead of a one voyage for $200,000 for 2 years at $60,000 $70,000 talking about VLCCs and other types of vessels. So with that in mind, we have placed the company to be able to navigate again the following quarters and years going forward efficiently.
We are looking at very attractive possibilities coming from major clients. I think we might be announcing very accretive transactions that will have a strong effect to our bottom line coming forward. We are in the final process of negotiating this. And with this overview in mind, I will ask George Saroglou to remind us what we've gone through in the last 90 more days and then we will be back. George?
Thank you very much, Nikos, and good morning to you all. 2020 has so far been a year for the history books. What started in China as a local health problem ended up gradually spreading around the world, creating a global pandemic of unprecedented proportions, which almost put the whole world to a complete standstill as a result of government mandated lockdowns, social distancing measures to contain the spread of the virus. In this global health crisis, our first priority was the health, safety and well-being of our families, our office personnel and the crew board our vessels. Of equal importance was to make sure that there was no business disruption, failure or downtime as a result of working remotely, the lockdown and the difficulties global containment measures imposed on shipping.
Both onshore and offshore personnel adapted quickly and successfully to the new reality. A big thank you to everybody. And while life, the economy and the world is opening again, let's be on guard until COVID-nineteen poses no longer any threat to anybody. We are pleased to report today a very strong and profitable Q1, one of the best quarters for 10 as a result of favorable market conditions, low oil price environment, super contango with record land and floating storage at sea and limited new supply of tonnage despite the unprecedented demand distraction from the global lockdown. There is a spillover effect of the strong rates into the Q2.
We are not currently at the headline record breaking rate levels, which are not sustainable, but the freight environment and the medium long to long term outlook continues to be very positive. Let's go to the slides of our presentation. In Slide 3, we see that since 10th inception in 1993, as our CEO mentioned, we have faced 4 major crisis. But each time, the company, thanks to its operating model, which is built to be crisis resistant, has come out growing stronger and bigger in size from 4 modern vessels in 1993 to a pro form a fleet of 69 vessels to date for an average 15% annual growth in term of deadweight fee in the 4 decades we operate. In Slide 4, we see the pro form a fleet and its current employment profile.
We have a combination of fixed time charters and flexible employment contracts, time charter with profit sharing, COAs and spot charters that capture the market's upside. All blue color vessels, 30 in the slides, are on fixed rate time charters, while the red and dark red colored vessels, 39 or 60% of the fleet currently in the water, has exposure in the market's upside. We have 11 vessels opening for charter renewals during the year, with 1 vessel opening before the end of this quarter, 9 vessels in the 3rd quarter and 1 in the 4th quarter. Slide 5, the left side presents the all in breakeven cost for the various vessel types we operate in TEN. As you can see, the cost base is low.
In addition to the low shipbuilding cost, which must highlight the purchasing power of Tsakos Columbia Ship Management, the continuous cost control efforts by management to maintain a low OpEx average for the fleet and the low general and administrative expenses, while keeping a very high fleet utilization rate quarter after quarter with 97% being the utilization number for the Q1 of 2020. On the right side of the slide, you see that the fixed vessels cover basically all the costs and the spot trading vessels, thanks to our financial and commercial strategy, are there to pay for the dividends. Now in addition, for every $1,000 increase in the spot rates, we have a positive impact of $0.08 in the annual earnings per share based on the number of 10 vessels that currently have exposure to spot markets. Debt reduction, as we can see in the next slide, is an integral part of the company's strategy. Since the end of 2017, we have reduced debt by €282,000,000 We have repaid in full the €50,000,000 preferred CDP shares in 2019 and intend to initiate at par the repayment of the 50,000,000 Series C preferred shares during the Q3.
Net debt to capital ratio at the end of March 2020 is 46.5%. We are not just taking advantage of the strong market to pay down debt, but we continue to reward our shareholders with healthy dividends. We announced today a special dividend of $0.025 per share in addition to the fixed $0.05 per share we paid semiannually. This $0.075 per share dividend will be paid on June 26. Since the company's listing in the New York Stock Exchange in 2,002, we have paid back in the form of dividends $10.93 versus an IPO price of $7.50 which represents an average yield of 5.25%.
On the market, Black April appears to be the month where oil prices and global oil demand bottomed. China is the first country where lockdown restrictions eased and now demand appears to be coming back at the pre COVID-nineteen levels. As the world gradually returns from lockdown restrictions, oil demand gradually recovers. The International Energy Agency and other market experts believe that the oil market is going to rebalance sooner than initially forecasted, thanks to the unprecedented mandated and market related production cuts by OPEC and non OPEC producers and the stimulus packages by governments and central banks to restart the economies and restore consumer confidence. The year end demand level at about 92,000,000 barrels per day will take us back to the 2013 oil demand levels.
To pivot back to the 100,000,000 barrels per day, the pre COVID-nineteen levels, it would take us back in 2021, provided that we will not face a second global lockdown of a similar proportion. The International Monetary Fund also expects a strong recovery for global GDP in 2021, which always is positive for energy demand. Let's not forget that the oil price, as long as it lasts, besides being good for the global economy, is a blessing as it stimulates stockpiling and reduces the bunker fuel bill for shipping companies. On the supply of tonnage in Slide 9, the order book currently stands at 8.3 percent or 3.81 tankers over the next 3 years, which is low compared to historical levels. We should also notice that a big part of the fleet is over 15 years and environmental regulations would push more tankers approaching or above 20 years to go for scrapping.
And this figure of vessels over 20 years is currently 7% of the fleet, which more or less balances the order book of 8.3% as it stands right now. On the last slide, Slide 10, 2018 was one of the highest scrapping years of records. Last year, scrapping was lower as expected. The strong freight market and the pandemic has put scrapping to a standstill. But with more than 1200 tankers older than 15 years, we could see a pickup in scrapping with more environmental regulations on the horizon and especially for those vessels approaching or currently above 20 years.
And with that, we conclude the operating part of the discussion and we move on to Paul and the financial discussion. Paul?
Thank you, George. Well, we've had a strong quarter 1, ending with significant cash reserves, mainly due to voyage revenues of $180,000,000 helped by full employment and with only 1 drydocking. This was 22% higher than in the prior quarter 1 and led to a doubling of operating income to $55,000,000 and of net income to $21,000,000 after noncash bunker hedge losses and including a 1,600,000 gain on the sale of the Suezmax Cilia T. Broken down, we had 46 tankers on pure time charter earning revenue of $80,000,000 Of these, 16 vessels had profit share arrangements that provided a further $20,000,000 The 2 LNG carriers, enjoying increased rates, together earned $10,000,000 Also, 17 vessels, Aframaxes, LR2s, Handysize, operated in the spot market, earning 70,000,000 euros EBITDA amounted to $90,000,000 a 40% increase over the prior quarter 1. In addition, free cash from vessel sales totaled $27,000,000 Operating expenses increased 4% mainly due to loading of at $7,900 a day.
The sale and leaseback of 2 Suezmaxes resulted in increased charter in costs by $2,500,000 but much of this is offset by interest saved by repayment of the related loans. G and A costs increased $1,000,000 partly due to one off professional fees. Otherwise, daily average G and A costs remained low with no increase in management fees for many years. Falling oil prices led finance costs to rise to $33,600,000 of which noncash negative bunker hedge valuations totaled $16,000,000 These are already reversing as oil markets rebalance. Actual loan interest fell by nearly $5,000,000 due to reduced debt and lower interest rates.
Vessel sales led to prepayments of $37,500,000 related debt, and we also paid $50,000,000 scheduled repayments in quarter 1, reducing outstanding debt to $1,490,000,000 For our 2 Suezmaxes being built, we will pay about $90,000,000 for delivery by year end, mostly from arranged loans and for the LNG carrier, dollars 36,000,000 by year end and $135,000,000 next year. Indications are that quarter 2 will be a strong quarter. And as such, we have secured a number of our vessels on charters at attractive rates, as Nikolas had mentioned, that has put us in a stronger position that even in a weakening market, we will generate a healthy cash flow to meet all our obligations. However, we actually believe that the market will remain strong due to positive underlying fundamentals plus a possible demand rebound as lockdown features fade. And now I'll hand the call back to Nikos.
Thank you, Paul, and keep on bringing us good news. Will do. Thank you. And I think with this, we would like to open the floor for any questions that you may have. Thank you very much.
Thank you. And your first question comes from the line of Ben Nolan with Stifel.
Yes. Hi. Good morning, guys. So I have a couple of things. First of all, Nikos, we're fully appreciating that the deal is not done, but you did allude to some things that you're working on.
Could you maybe just characterize the kind of things that you're currently pursuing? I mean, are we talking about new builds with long term contracts as we've seen you done before or maybe the segment, just a little bit more color as to sort of where your head's at with respect to opportunities?
Yes. So you're going to spoil the surprise. Mr. Saroglou was already drafting a surprise press release for next month. I mean, similar to our strategy of long employments in specialized types of business, we are in close negotiations for up to 3 units that will have, of course, significant accretive double digit locked in returns.
So I think this is work.
As you
said rightly, it is in our strategy built always after your clients request and not build speculatively in our business.
Okay. So that leads to another question. And I believe that the LNG carrier that's on order just does not have a contract. Through what you're thinking about that, appreciating that there's a little time before now and then, but obviously, that's a very expensive ship and getting employment on it, I'm sure is top of mind as a respect to your strategy.
I think this is a very good point, Ben, and you know the company. We as a company have the luxury because we are, if you look on Slide 4 of our presentation, out of our 60, 69 vessels, we have a very diversified fleet. So we are actually we are looking at any business that makes sense in oil and gas transportation. So although we have been one of the first movers in gas, we ordered our first vessel, the very good new energy back in 2004. We have never and I think so far, we have not regretted it.
We have not been convinced that this market really, because of all the infrastructure demand behind it, will skyrocket as our good brokers were trying to convince us when they were bringing lots of new building contracts for us to sign. But on the other hand, we believe gas is an important integral part of our business. And being a diversified company, we want to follow the developments. Having one vessel with another option for the Q4 is something that even if that market does not go as expectations, it will not we will not feel it in our 69 vessel fleet. So in the sense, we are continuing to follow developments.
We have one vessel, very good performer of steam turbine. We followed with TriFuel Technologies, which is one of our best earners. Today, the Maria Energy is earning, I think, something like $75,000 a day for the next couple of years. So I think that's very accretive to our bottom line. And then we have the new vessel unnamed, still unnamed, which is for delivery in January 2022.
So I think there is a lot of time until then to play the market, see the market there. There are people out there that are offering us business for the ship, but it's nothing that will hurt one way or the other the company, but it is our obligation and the portfolio of the way to follow the developments in that market.
Okay. That's helpful. And then lastly, for
me and I'll turn it over. From a capital allocation strategy, you guys are doing a lot of things. There's a little bit of a dividend increase. You're buying back preferred. It sounds like you're in the market to go spend for growth.
Can you maybe just rank order what you're thinking about, especially given you're optimistic for the future, but I think anybody would say it's still a little bit
of an
unknown. How are you balancing safety versus growth opportunities and where are the best places for your dollars?
I think in the pecking order, repaying the expensive reps come first. And then we can as Nikos said, investing in ships is a question of markets and demand and prices. So you cannot rank that. This is always a priority, top priority. But in terms of we have enough press to repay before we find something else to do.
Let's put it
this way.
Okay. All right. Very helpful. Appreciate it. Thank you.
Thank you.
Your next question comes from Randy Giveans with Jefferies. Randy, your line is open.
Howdy, gentlemen. How's it going?
I'm doing very well. Thank you. Rich, 2 for lasagna this year.
I know, I know. Hopefully, in October. Question around the profit sharing. What was the amount there for the Q1 and was that a record? And then just kind of see some guidance for the Q2.
I know rates were pretty strong, especially in the product tankers in April and have fallen to $0.15 So if you can maybe give a little more commentary on the market as of today and where is it?
[SPEAKER RAFAEL SALVADOR GRISOLIA:] I
think the
market yes, the market was very strong
in the Q1. And we had at least EUR 20,000,000 additional revenue from the profit sharing. And this is 10%. This is significant. And of course, the market has been very strong also until now.
So it is expected to have this continuation of the profit sharing adding to the bottom line as long as the market stays at these levels.
Yes. And then I was saying in terms of the second quarter, are you expecting kind of something similar to that 20,000,000 or a little more, a little less?
I think what we're expecting is perhaps might be similar, and we might see a bit higher revenues from the fixed vessels because we fixed 5 ships going forward. So I think that could be a similar profit sharing and then hopefully a little bit more from the spot vessel, spot sorry, for the fixed vessel.
Got it. Okay. And then turning to the dividend, I guess two questions around that. What was the kind of thinking of raising it by the $0.025 instead of keeping it flat or instead of doubling it or whatever? So how did you kind of get to that $0.075 for the quarter?
And then secondly, looking at the chart on Slide 7, it seems like in 2017, there were 4 quarterly payments of $0.05 a share for $17,000,000 2018, there were 3 payments of $0.05 a share for $13,000,000 2019, there were 2 payments of $0.05 a share for $9,000,000 So is the quarter is the dividend now semiannually or how should we think about that?
Well, yes, the dividend has gone semiannual from 2018. That's why I think when it that's why you see in 2018 the missing one quarterly payment and then we have the semi annual payments going forward. So the payment is June December.
Okay. And then
just the calculation of the special dividend is still rocket science. We felt that because of a good market, our investors should be rewarded a bit more. This is a one off. Our base dividend continues to be, in our minds, EUR0.05 per share twice a year. And going forward, we'll see how the market develops and acts accordingly.
Got it. And then last question on the reverse split, kind of same question around methodology of thinking there for 1 for 5 instead of a smaller or larger number, did you get in that low double digit range?
Well, what we try to do is find a figure that would not completely dry up liquidity in the sense of how many shares that would be outstanding because if we have done 1 to 10, we'll be 9,000,000 shares outstanding, will be a very small amount. So we decided to do that 1 to 5 is a good plus hopefully having the share at $3 it will be higher than we started some time ago.
Got it. Sure. All right. Well, that's it for me. Thanks again.
You all stay safe.
Your next question comes from Jay Bienvenmire with Value Investors Edge.
Hi, good afternoon, gentlemen. Thanks for taking the questions.
Thank you.
So first question I had is, it sounded like the first LNG carrier has been moved to January 20 20, just confirming or 2022, just confirming that one. And then second, I know you have an option for a second LNG carrier. What's the time line on which you have to exercise that option or cancel that?
Well, I think it's within the Q3. But of course, the yards today, as you might know, I'm sure you know because you follow things very closely, they are starved for orders. And they are willing to give more optionality, as we say.
Okay. Looking for the Q3, maybe the ability to push that back? And then, of course, are you confirming this January 22? Yes, we
will be making a decision by the end of the year.
Okay. We'll look for more color on that. And what was the agreed upon price for that auction, that second one?
It is similar to the price we have for the existing ship. But depending on market conditions, we might if we decide to take it, we might get a discount.
Okay. We'll have to continue to watch that. In terms of the remaining new builds, you have 3 more left, the 2 tankers and the LNG carrier. Can you remind us of the remaining CapEx and the time line for those payments?
Paul, on what are the CapEx or the remaining CapEx?
Right. So as far as the 2 Aframaxes are concerned take your pardon, Suezmaxes that were being are going to be delivered towards the end of the year, we are looking at another GBP 90,000,000 or so that we have to pay. For the LNG carrier, we have about 36,000,000 remaining this year but another 135,000,000 dollars next year up until actual delivery.
Thank you for that. So I'm tracking $90,000,000 for the tankers and then about $170,000,000 for the LNG carriers. And then on your repurchase authorization, you started a $50,000,000 program last quarter. It looks like in the press release, I didn't see any indications that you'd use that. So is that correct, no repurchases yet?
And then secondly, I think there's a little bit of discussion earlier on this, but can you confirm your priority on that? Is that mainly for preferred? Or are you also considering common at this time?
It's mainly for preferred, but and we have a €50,000,000 pref that we intend to buy back at part in the Q3. And of course, all for common shares as well. But the priority, the first priority is on press.
And is that $50,000,000 of authorization, is that in excess of the $50,000,000 that you have reserved for the Series C?
It's in combination.
And final question for you. I know you mentioned at the start of the call that you're looking into refinancing transactions. But prior to those, so just currently as it stands, can you remind us of the amortization curve for 2020 and then the repayments for 2021 and 2022 as well? Paul?
Well, scheduled repayments for the whole year 2020 are about 130,000,000. And in 'twenty one, we're looking at about 160,000,000 and 'twenty two, 150,000,000 and 'twenty three, about €130,000,000 There will, of course, be balloons, but we usually assume that the balloons will be refinanced.
I don't think we have any more questions.
Next. Thank you. And I will turn the call back over to Mr. Taco.
Thank you. Thank you very much. And again, as we said, we would like to thank all of you The last 10 weeks since we last spoke have been really life changing for many of us. And for sure, our main target has been to make sure that the safety of our seafarers around the world has been the most important case. And so far, we have been efficient and supportive of this and we could not achieve that of the whole organization in the next hours of the lockdown, which we still experienced in a much smaller fragment.
So it's been a very interesting 10 weeks since we spoke on March 24. The news that we are reporting today are very positive news, but the most positive part of our news has been the safeguarding and the health and the safety of our seafarers all over the world around our vessels. As far as the prospects for the market, the 10 is a company that has gone through 4 crisis in the past, 4 crises that are extraordinary to shipping, are not shipping crisis. We have quite a few of those in between. But we started with the Far East crisis where the company came out stronger.
Then we had 9.11 with 2 or 3 years of almost significant reduction of global trade because of the event. Again, the company took the opportunity to come up out of it stronger. Then in 2009, the financial crisis, which really until 2019, we were still absorbing the overbuild of that period. And as soon as we started enjoying a good market in 2019, the COVID crisis, but again, with the help of everybody, the company, we believe, is coming out stronger from that period. The fundamentals in front ahead of us are positive.
We believe that we could see a V shaped recovery. There are signs that hold that China, which was the first country in the lockdown, could be the first one that will drive this recovery. The OPEC reduction has some silver linings for some trades, create more ton miles in many cases. We already are seeing that India is doubling its imports in the last since March. And it has to take imports from not the directly close OPEC countries, but for longer ton mile routes.
We're seeing China having a reduction as it opens up of about 7,000,000 to 9,000,000 barrels a day. And he's looking for trades from much for exporting others that provide more ton miles and will just show a lot of Chinese fixtures from the north part of Russia, from the European part of Russia. 4 VLCCs were fixed from Skow all the way to China, a lot of ton miles in that. And the new buildings, as Mr. Zaroglou said, they're down to 8% or 9% of the world fleet.
It was 40% of the world fleet in the last crisis in 2,000 and 2,009. So this gives companies like ourselves a good future fundamentals. It will be there might be some uphill battles, but we took the opportunity to check 6 of our vessels long term during the strong market of the Q1 and the remaining quarter. And we hope when we talk to you next in September to have much better news and find everybody safe and well again. Mr.
Chairman? [SPEAKER JOSE RAFAEL FERNANDEZ:] Well, thank you all for joining us.
Let's wish Nico and his team a successful quarter, the second quarter, And let's hope that the market continues to be buoyant as it is, as it has been. And I'm sure we'll be able to announce to you equally good results next time. Thank you all. Stay safe.
Thank you for your participation. This concludes today's conference call, and you may now disconnect.