Thank you for standing by, ladies and gentlemen, and welcome to the Tsarqos Energy Navigation Conference Call on the Q4 2019 Financial Results. We have with us Mr. Katis Arapoglou, Chairman of the Board Mr. Nicholas Sarkos, 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 this conference is being recorded today. And now I pass the floor to Mr.
Nicolas Bono, President of Capital Link, Investor Relations Advisor of Tsarckos Energy Navigation. Please go ahead, sir.
Thank you very much, and good morning to all of our participants. I'm Nicolas Bornovis of Capital Link, Investor Relations Advisor to Tsakos Energy Navigation. This morning, the company publicly released its financial results for the Q4 and the year ended 2019. In case we do not have a copy of today's earnings release, please call us at 2123661756 6 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.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 in backyards 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 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 1995. Investors are cautioned that such forward looking statements involve risks and uncertainties, which may affect TEM's business prospects and results of operations. And at this moment, I would like to pass the floor to Mr.
Arapoglou, the Chairman of Tsakos Energy Navigation. Please go ahead, sir.
Thank you, Nicholas. Good morning, everyone. 2019 was another year where TEN proved both its defensive qualities in difficult times and its ability to respond fast when markets improve. Today, we announced a profitable last quarter of last year and a profitable overall year as a whole, which allows us, of course, to take a very sizable impairment charge, allows us to maintain our dividends, announce a buyback and while at the same time, we are renewing our fleet, expanding our relationships with blue chip customers, all stuff that we've been doing all along. And has established a very sound base in its business throughout the years.
Congratulations are in order for Nikos Tsakos and the team. And let's hope that our markets continue to be as strong as they are today for the rest of the year. That's all for me. Over to you, Nikosakos. Thank you.
Thank you, Mr. Chairman. And first of all, I hope and we want to wish all of our locked up friends that this ordeal will pass very fast with at least disruption to family happiness and health. And I think business comes second. But of course, for us here in Greece and with 3,000 seafarers on board, we consider all of them family.
So there, well-being is very, very important as also the well-being of our vessels. And has been as we spoke before 2019, which was really a rollercoastal year with lots of ups and downs with a very strong start, a very, very, I would say, depressed rate environment in the second and third quarter and then a sudden boom on the 4th, it looks very like a very normal year on what has happened since then. However, the company split in utilization is working and taking advantage of circumstances. The dramatic drop in the price of oil actually enhances our business. So there is a lot of oil that has been moved around right now.
There's a lot of inventory oil. There is a huge opportunity for the product carriers that finally, they can actually move a lotion for economically around the world. So all our ships are very much in demand. So unlike unfortunately or I mean unlike other transportation in part of the transportation industries, the seaborne transportation right now, mainly the energy segment and specifically crude and products is really booming. So we expect looking forward that we have the oil companies that know what they're doing there, the clients looking for ships for 1 or 2 years, pushing us very hard, paying very healthy accretive rates for these businesses.
No one is building any supply right now. All the cities in the world are closed. The last thing someone has in mind is to add supply. So we are looking when we get out. And as I said, our priority is to get everybody out safe from this ordeal.
And as soon as we get out of that, I think we will continue to see a healthy return. It is really mind boggling to look at the performance of our shares together with every other share. I think in our case, it is really it makes no sense. And that's why we have initiated a significant buyback program and we maintain our dividend to give the signal to all the business as usual is there. And of course, the as usual has to do with business, but of course, shelf is more important.
And in this environment, as I said, things look very positive for the Q1. It looks that the good market will go well within also in the Q2 and for the full year. And with that, I will ask George Charon, our very on hand COO, to sanitize his hands and give us a little bit of what's happening. George?
Hi, Justin. Thank you very much, Nikos. And let me start also by wishing good health to everybody joining us for this call, to our seafarers and our onshore personnel and of course extend this to every human being out there fighting to stay well and healthy during these difficult times. We are pleased to report a profitable year as a result of a better freight market environment that started improving since the Q4 of 2018. Freight rates in 2019 started strong during the Q1.
We then had a softer middle and a very strong finish in the Q4 with freight rates hitting multiyear highs. This year 2020 started with a strong tailwind in January before the news of the virus outbreak initially coming out of China and then from the rest of the world changed the positive sentiment the market had for the year. The various containment measures that government took to stop the virus from spreading globally affected significantly global economic activity and as a result global oil demand. The collapse in the talks between OPEC and Russia on additional production cuts to counter the expected fall in Chinese and global oil demand and the ensuing price war between Saudi Arabia and Russia sent oil prices crushing to levels that we have not seen since 2003. With oil prices hitting multiyear lows and the oil complex into contango, stockpiling at low level prices and oil storage in tankers helped freight rates hit again the multiyear high levels of last year.
The strong market that started initially with VLCCs had a spillover effect on Suezmaxes, Aframaxes and the rest of the tanker size and tanks. If we move on the first slide of our presentation, Slide 3, in this strong freight market, TEN is well positioned to take advantage of the market's current strength. We have 37 vessels trading in the spot market under COAs and profit sharing arrangements and we have 16 more tankers that opened during the year. If we combine the 2, then up to 80% of the operating fleet could have their freight income related to the spot market. In this slide, in yellow, the vessels represent in yellow, the vessels currently trading in the spot market and in red the vessels that opened for each other during the Q4 of the year.
Next slide, Slide 4 shows how many of the 16 vessels opened during each quarter with the majority as you see 8 and 5 opening in the 2nd and third quarter of the year. Slide 5 presents the all in breakeven cost for the various vessel types that we operate in TEN. As you can see, we have a very low cost base. In addition to the low shipbuilding cost, we must highlight the purchasing power of Costolo Asset Management, our technical managers, the continuous cost control efforts by management in order to maintain a low OpEx average for the fleet, low general and administrative expenses, while at the same time, we keep a very high fleet utilization rate quarter after quarter and year after year, again, in excess of 96% for the year. And thanks to the profit sharing elements that the big portion of the fleet enjoys then benefits further when market conditions improve like the period we have now.
And based on current market conditions and the number of vessels operating in the spot market, for every $1,000 increase in the spot market rates, we had a positive $0.06 impact in annual EPS. Debt reduction is an integral part of the company strategy. And in Slide 6, you see that since the end of December 2017, we have reduced debt by 218,000,000. In the last 12 months, the company paid back 62,000,000 taking down the net debt to capital ratio at the end of 2019 to below 50%. In addition, at the end of July, TEL fully redeemed a highly successful 50,000,000 shirubishi preferred shares.
Looking at the demand. As soon as the virus related lockdowns for cities, states and countries globally ends, oil demand is expected to rebound hopefully quickly enough to pre virus levels. Additional major support measures from governments and central banks remain highly likely to ensure consumer and small to medium sized businesses survive while the containment measures last and economic activities curtailed. China is slowly coming back as the latest news out of China suggests that the virus outbreak is slowing, if not almost over. Oil demand in China this month will rebound from the February lows.
However, March 2020 year over year will be approximately 19% down or 2,500,000 barrels per day, citing a report from China National Petroleum Corporation. The low oil price environment, as long as it lasts, is stimulating stockpiling, storage at sea and reduces the procurement cost of bunker fuel for shipping company. So if you look the way to be looked, it's basically a blessing. On the supplies of tonnage, the order book at 7.5% is low compared to historical levels. A big part of the fleet is over 15 years and environmental regulations could push more tankers approaching for above 20 years to go for scrapping.
2018 was one of the highest scrubbing years of records. Last year's scrapping was lower as expected, but with more than 1100 tankers older than 15 years, we could see a pickup in scrapping with more environmental regulations on the horizon, especially as we said for the vessels that approach for over 20 years. The market prospects, generally speaking, are good and we expect the trends to continue as soon as the virus is behind us. And with that, we conclude the operational part of our presentation. Paul will walk you through the financial highlights for the Q4 and the full year.
Paul?
Yes. Thank you, George. Well, at the end of what I thought was a difficult year, but as Nicolas said, it wasn't so difficult after all compared to where we are, kind of like a normal year. TAM achieved a quarter 4 net income close $41,000,000 before impairment charges of $28,000,000 Turning now, that would compare to a $3,000,000 net income before impairments in the prior quarter 4, so quite a change. For 2019, net income before impairment charges was almost $43,000,000 a $76,000,000 turnaround from the previous year.
Quarter 4 revenue totaled $175,000,000 a $22,000,000 increase, much due to profit share as the tanker market was blessed with a long overdue recovery, allowing our fleet to achieve a 98% utilization. In 2019, revenue amounted to $597,000,000 a $68,000,000 increase, a third of which came from profit share. Also, accretive charter renewals were secured, including a significant increase in our LNG carrier rates. Quarter 4 daily TCE per vessel approached $26,000 a 20% increase. Quarter 4 costs per category remained at similar levels to the prior quarter 4, except for voyage expenses, which fell 17% due mainly to lower bunker costs.
Total quarter 4 operating costs remained at about $46,000,000 with the same average number of vessels, while daily average OpEx per vessel remained at about $7,800 helped by
a stronger dollar.
Also, G and A expenses were at exactly the same number as in the previous quarter 4. Quarter 4 finance costs were halved to $13,700,000 mainly due to improved bunker hedge gains. We aim to sell 8 vessels in 2020, one of which, Celia T, was sold this February, releasing $5,000,000 cash after paying down $11,000,000 debt. 2 sewage taxes were sold this January as part of a sale and leaseback deal, resulting in reduction of debt by $27,000,000 and release of $22,000,000 cash. As a result of these proposed disposals, the impairment charges were incurred.
We took delivery of a new Aframax in January with $26,000,000 paid from debt and $5,000,000 in cash. We should take delivery of a Suezmax with charter in quarter 3 and another in quarter 4 with payments of $110,000,000 financed mostly with Arrange Bank Finance. Payments of $46,000,000 will also be made this year relating to our LNG carrier under construction and $135,000,000 next year. Despite new debt relating to the delivery of new vessels and refinancing of older debt in 2019 at better terms, which actually released $29,000,000 in cash. Debt was reduced by $62,000,000 in the year, bringing total debt down to €1,540,000,000 and net debt to capital to 48%.
Quarter 4 EBITDA was $90,000,000 a 36% increase. For the year, EBITDA was $257,000,000 a $66,000,000 increase over 2018, allowing TEN to maintain a healthy cash position at the year end. We enjoyed a spectacular recovery in the tanker market in quarter 4, which lasted well into quarter 1, apart from a brief dip in February. However, with many vessels still operating on a healthy time charters and with profit share and with our spot vessels again attracting lucrative rates, we expect a strong cash flow plus freed up cash from vessel sales to cover all obligations in quarter 1, including loan repayments and prepayments totaling $100 I wish, dollars 100,000,000 This concludes my comments. So I'll pass the call back to Nikolas.
Thank you, Paul. I like the way you think, reducing you're reducing the expenses and increasing the earnings. That's very good. Well, thank you very much, Paul. And with that, we would like to open the floor for any questions.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. We will now take our first question from Randy Giveans from Jefferies. Please go
ahead.
Howdy, gentlemen. How's it going?
Good. Locked up in Athens, but could be worse.
That's for sure. There are worse places to be locked up. But all right, well, a few quick questions for me. I guess, looking at your new buildings on order, have we seen many delays for those? I know the delivery now is for 3Q and 4Q of this year.
Have there been kind of force majeure declarations at the shipyard that are likely going to push those? Or do you still expect to receive those on time later this year?
I believe that we will be and I think Mr. Papayor, you is in our meeting here. And we believe that the first vessel is going to be delivered on schedule in the 1st week of September and then the second one in the last week of October. So, so far, on schedule from what we understand. Vasily, are you is Vasily there?
What was that last part? Sorry.
His line was cut off. Yes. Okay. Very good. Go ahead.
So yes, so on schedule so far.
Got it.
Okay. And then quickly looking at the refined products, I know you said obviously the crude market has been robust, floating storage, you have all these stems coming out of Saudi Arabia. Have you seen a lot of activity on the refined product side? Any for storage on the floating storage for refined products? Or is that purely just gasoline, diesel, jet fuel, arb opportunities on the products tankers?
Well, I think what we're seeing right now is a lot of products movement, which we do not expect. I mean from our LR1s and sometimes LR2s, the Medjapant Clean Market, the products market, is at all time record high because prices in Europe are so low, understandably. So people are replenishing the 05s. You remember that there was a lot of talk that was getting very expensive to meet the 5 regulation and the 0.5 regulation, of course, that's what I mean. And now at these prices, which are lower than heavy fuel used to be last year or much lower, people are moving.
So we have a lot of demand between the Med and Japan for clean. And I think another thing that we have we are experiencing is that although the complete stoppage of movement in China has created a lot of available products from the local refineries. So we have seen an increase of more than 30% also on exports of products from China to the region. So in general, there is a lot of movement. And that's when movement is there, that's what we are there.
We are the truck drivers of the CECL, we need to pick it up.
Got it. Okay. That's fair.
And then two quick modeling questions.
Obviously, your interest expense fell dramatically. I think you said that was mainly due to bunker hedging or trades. What is your expected interest expense in the Q1 and the second half?
Paul, please take that one. You are the one who reduces that.
Yes. I think we're looking at around $13,000,000 a quarter.
So that's the new one, I think, sorry.
Quarter 1, we're looking at yes, about €15,000,000 a quarter.
And the OpEx reversal in Q2, just continuing with the as the bunkers are less profitable, the bunker hedging? Or what's the Q2 guidance?
That's very possible. We'll probably get a hit from the middle of the year. So it's probably going to go up to who knows, but potentially $20,000,000 each quarter.
Okay. That's fair. And while we're discussing Q1, for all intents and purposes, the Q1 is also over, right? So how are you looking at 1Q numbers? Is it safe to assume that 1Q could be even better or should be better than the Q4?
Can you give some kind of guidance on now that the Q1 is done?
I think that we will see, of course, a very profitable quarter. We might have some noncash items, as Paul said. I think we have made a hedging of a small of about 30% of our needs for 05 basically going forward. So I think we have 30% over the next 4 years. Is that right, George?
Yes,
that's right.
So the EUR 20,000,000 that Paolo mentioned, it's not a real carrying figure. It's a figure that it does not compound. It's the same figure that in some quarters, depending on the price of oil, it might be higher or lower. So it's not when we say up to €20,000,000 per quarter, it doesn't mean it does not mean €80,000,000 a year. It means that 1 quarter might be €20,000,000 1 quarter might be €15,000,000 That's, understandably, a noncash item.
But at the same time, with the twothree of our bank needs are making a killing because we are paying bankers on the spot market much, much, much, much cheaper. So if you exclude those noncash items, I think we will have a very similar quarter. And believe it or not, I think even the Q2 will also be very strong because a lot of our vessels, to give you an example, on the Q4, our VLCC, the Ulysses, earned up to February $125,000 a day. Then her next voyage, which is finishing in the middle of April, is remaining only $40,000 a day. We are negotiating the next voyage back to close to $100,000 a day, so which will carry here within very much within the second and third quarter.
And of course, another factor that we should not forget is that from April's Fools' Day and on March 1, the new rate, huge escalation rates are happening on our LNG carriers going up to close to $75,000 So in general, I think we will have a similar quarter, excluding the unrealized losses on banker hedges.
Yes, yes. That's understandable. All right. Last question for me. Obviously, the $50,000,000 repurchase authorization is very encouraging to see here.
You mentioned in the press release that there's been panic selling. You mentioned on the prepared remarks that obviously the sell off has been mind boggling quoting you. So how quickly can you implement and use that $50,000,000 we do it all tomorrow, right? And then secondly, is it going to be geared toward the common units at a 50% discount to NAV? Or is it going to be the preferreds, which are also trading at $13,000,000 $14 for some of the Series E, F, even the D?
So how do you
kind of balance those 2?
Yes. I think that we will do it mixed. We might keep priority to the common. And what I said, mind bogling, it's for the whole banking industry. Not I mean, in our case, it's because we know and I mean, we the company right now, we are valued almost as much as the cash that we have in the bank.
So it's very, very cheap. So I think it's a very good investment for us to make. Also, we have our coupons. We have one coupon. We have one of our obligations that is due, and we will be buying it out in October, by October.
And then our other obligations, the coupons, as you said, which are close to 9% that we are paying, people are earning double on them right now, which is really a huge it's racketeering returns. So we will mix it up, starting starting on the common and then doing something more organized on the preferreds.
Got it. And then just the first part of that question, how quickly can you implement that? Can we do $50,000,000 pretty soon? Or is it like having the
I think you have to follow a part of liquidity. So it has to be done in an organized manner, but we will start as soon as possible.
Excellent. All right. Well, I'm looking forward to the next results with some huge preferreds and common units.
Very good.
All right. Well, hey, thanks again. You all stay healthy and God bless out in Greece.
Thank you. All the best. Stay healthy too.
And we have no further questions at this time. So I'd like to hand the floor back to Mr. Sarkov.
Thank you. Well, it is again, it's encouraging that to have you listening to us, listening to our story. We are in uncharted territory, but we are experts in navigating things. So I think we will find the right choice going forward. As we speak right now, we expect the way we run the business that we have a model, we have our clients, our clients are the biggest oil companies out there, and we expect a good next 1 or 2 quarters.
But more importantly, for us, it's to have all of you and your families, the national families and our seafarers, healthy. So thank you very much for that. And please, we'll ask our Chairman, Mr. Arappoglu, to close the call. Hello.
Thank you, Nico. Just to close by saying look after yourselves, stay healthy, and let's hope that the markets continue the way they are today. All the best. Thank you.
Thank you.
Thank you. That does conclude our conference.
Thank you. Well done, guys. Thank you.