Thank you for standing by, ladies and gentlemen, and welcome to the Takoff Energy Navigation Conference Call on the 4th Quarter 2017 Financial Results. We have with us Mr. Takisarapoglou, Chairman of the Board Mr. Nicholas Tsakos, President and CEO Mr. Paul Durham, Chief Financial Officer and Mr.
George Soroglou, 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. I now will pass the floor to Mr.
Nicholas Boenozis, President of Capital Link, Investor Relations Advisor of SacoFenergy. Please go ahead,
sir. Thank you very much, and good morning to all of our participants. This is Nicolas Bornoils of Capital Link, Investor Relations Advisor to Tsakos Energy Navigation. This morning, the company publicly released its financial results for the Q4 of 2017. In case you do not have a copy of today's earnings release, please call us at 212-661-7566 or email us at 10 capitallink.com, and we will e mail a copy to you right away.
Please note that parallel to today's 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 on the webcast. Please note that the slides of the webcast will be available as an archive on the company's website 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 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 TEN's business prospects and results of operations. Such risks are more fully disclosed in TEN's filings with the Securities and Exchange Commission. And before turning the floor over to the company, I would like to make to mention 2 things.
First of all, the conference call today is being held from the Metropolitan Club in New York, where we're hosting the 12th Annual Capital Link Investment Shipping Forum. And the management of the company is in New York. It's at the conference. And they will have a full day of meetings with investors and analysts. So they will have the chance to interact with a lot of our conference call participants live today.
And second, I would like to mention that on Wednesday, April sorry, March 14, the management of 10 will open the New York Stock Exchange, ringing the opening bell, celebrating 25 years of life as a public company. And may also landmark in the company's history. So please watch for the opening bell on Wednesday, March 14. And now I will turn over the call to Mr. Tsakos Sarapovlu, the Chairman of the Board of Tsakos Energy Navigation.
Mr. Sarapovlu, please go ahead, sir.
Thank you, Nicolas. Good morning and good afternoon to everyone. Thank you for joining us today for the announcement of our 4th quarter and full year results. As you heard, we're celebrating 25 years as a public company, and we're doing this in great style. Despite the difficult market throughout 2017, we recorded another profitable year.
We maintained our dividend and successfully completed the most ambitious state of the art new printing program in our history. These are all achievements we are very proud of as they clearly distinguish us from our peers. Our strategy to lock in more than 70% of our fleet in long term charters early enough in the previous cycle with a big portion of profit sharing agreements has created an invaluable buffer of income in poor markets and plenty of upside going forward. As a second equally valuable achievement, our team continues to drive, as the CEO will explain, operating excellence by steadily reducing costs and securing record fleet utilization. So congratulations once again to Nicolas Tsakos and his team for this great performance and for placing us in an ideal position to greatly benefit from a market improvement going forward in 2018 and beyond.
Thanks for listening. And over to you, Nikos Tsakos.
Thank you, Chairman, and good morning from sunny New York. We were hoping to be a bit colder to help our rates move, but it's nice to be here. It's nice celebrating 25 years as a publicly traded company with a continuous record of profitability and dividend payments. Looking around the tanker environment, the spot rates are still on the crude side in a negative mode, but we see more and more life happening on the clean. And we believe that the tanker rate, the darkest tower might be close to the bottom right now, hoping to see better rates in the 2nd part of 2018.
The strategy we have implemented with the help of the board is able to maintain the company's profitability even in a very negative market environment and allows us to be able to continue our dividend payment policy. Looking forward to a better market and hopefully much higher profits and higher dividend going forward. And with this, I will ask George to give us the details of a very exciting 2017, where we completed a huge new building program. I was looking at our presentations this week. It's the first time we do not report a new we're not reporting new building deliveries coming forward.
All of the ships being fully chartered for a very long period of time. So with that, George, please go ahead.
Thank you very much, Nikos. The company reported today another profitable quarter and profitable year. 2017 has been a profitable year for TEN despite the weaker spot market for winter months that we can remember. Lower OPEC production, supply outages and lack of weather delays prevented the spot market from stepping up to seasonally expected winter trading freight levels. In this environment, TEN's proven commercial strategy of fixing most of the vessel on medium to long term time charters paid dividend again as it helped the company to outperform the 2017 average freight indices in all vessel classes the company operates, helped pay for all operating and finance expenses and guaranteed profitability.
We believe that the tanker rates have reached the low point of the current cycle with recovery expected in mid to late 2018. In TEN, having completed in the Q4 of 2017, the biggest fleet expansion program of our corporate history after delivering after following the delivery of the last vessel in a 15 series newbuilding vessel order, we are well positioned to take advantage of the market's expected recovery and new up cycle. 2018 will mark the 1st year that these 15 newbuilding vessels that had medium to long term employment attached to 1st class charters ranging from minimum 2 to maximum 12 years will make full impact to the company's financial results with an expected 30% increase in revenues assuming only their minimum rates for 2018. For those of you who are connected to the Internet and our website, there is an online slide presentation which format we will follow during the call. Turning to Slide 3 with the key corporate highlights.
We have 65 vessels as an operating fleet, 25 vessels have ice class capabilities. The whole fleet is ready to take advantage of the stronger freight market expected ahead of us. Average age of the fleet, 7.7 years versus 10.3 years for the World Tanker fleet. A balanced employment strategy that takes advantage of market peaks with profit sharing arrangements. Out of the 65 vessel fleet, we have 50 vessels on secured employment contracts with an average duration of 2.6 years.
The emphasis is on charters with profit sharing arrangements that enable TEN to take advantage of spikes and stronger freight markets. Minimum contracted secured revenue of $1,300,000,000 with potential additional revenues from profit sharing arrangements. Modern diversified fleet covering client transportation requirements in crude products, shuttle, tankers and LNG and being the carrier of choice for many of the top oil majors, commodity traders and refineries. Highly efficient operator with consistent high fleet utilization at 98% for 2017. The next slide has the main financial highlights of our press release, which Paul will present in more detail.
I would like to just highlight the profitability, the company's strong financial position and continuous cost control that reduce daily operating expenses with the help of the company's technical manager. Slide 5 has a breakdown of the current fleet of 65 vessels. We have 47 vessels that are engaged in crude trading, 13 vessels are doing product rates, there are 3 shuttle tankers and 2 LNGs. Slide 6 has the TEN list all the TEN's clients. As you can see, all of them are blue chip names with whom the company is doing repeat business over the years.
Thanks to the modern fleet, the quality of service and safety record of the whole enterprise fleet. You can see 10 names there that generated 72% of the 2017 revenue. Strong secured coverage with upside potential. We have already announced during 2018 the charter extension of 7 Panamaxes and 1 Handysize Tanker in direct continuation to an existing long charters. 4 Panamaxes have their charters with minmax profit sharing extended until 2021 and 3 Panamaxes plus the 1 handysized tanker until 2019.
We also had 1 more Suezmax being fixed to an existing client on a 3 year charter with profit sharing arrangement. So currently, we have 50 vessels out of the 65 vessel fleet fixed under secured revenue contracts via combination of time charters and time charters with profit sharing and COAs. 38 vessels are on the market related charters, including the vessels currently trading in the spot, securing the company's ability to immediately capture the market's upside. In the slide, these vessels are colored red and colored half red and half blue. The revenues expected from the vessels in the fleet with secure employment cover the company's annual operating and financial obligations.
The new building program, which we just concluded, is on Slide 8. These are the 15 new building vessels that we took delivery since 2016. All vessels are currently tied on medium to long term time charters. All vessels are fully integrated in the fleet and expect to contribute at least a 30% increase in revenue in 2018 considering only the minimum base rate that some of these vessels have. Slide 9 represents the breakeven cost for the various vessel types that we operate in TEN.
As you can see, the cost base is low. In addition to the low shipbuilding cost, we must highlight the purchasing power of TCM and the stringent cost control by management in order to maintain a low OpEx average for the fleet, while keeping a very high fleet utilization rate quarter after quarter that we believe qualifies as full employment. 77% of the fleet is tied to secure revenue contracts that cover the company's annual obligation. In addition, the combination of time charters with profit sharing, COAs and spot charters guarantees the company a share of the market upside every time we have a spike or a sustained strong freight market. Based on the current number of vessels operating in the spot market and in time charter with profit savings, for every $1,000 increase in the spot market, this has a positive $0.15 impact in annual earnings per share.
The market in Slide 10, global oil demand continues to grow above historical growth levels and this trend is expected to continue in 2018 as demand is forecasted to grow by 1,500,000 barrels per day. Global oil inventories are falling towards the 5 year average, which could lead to a change in OpEx and non OpEx current policy of production cuts once the goal is achieved. Improving economic conditions in OECD countries and the low oil price environment continue to support strong demand in the USA, in Europe, in China and in India. We should also note that with U. S.
Crude oil production rising above 10,000,000 barrels per day for the first time since 19 70 and U. S. Exports of 1,400,000 barrels per day and growing, new trading groups are developing, which increased ton miles and improved the utilization of the global fleet, thanks to the longer distance nature of these voyages. On the supply of tankers, tanker fleet growth is expected to fall this year and next on lower deliveries and higher scrapping. A big part of the existing tanker fleet, as you see in this slide, is over 15 years.
The implementation of new environmental regulations with high compliance course and charter discrimination against older tonnage should lead to an increase in scrapping. 2017 has been the highest scrapping year since 20 13, and we see the scrapping pace continuing in the early part of 2018. In view of all that, we announced today another dividend of $0.05 per share to be paid on May 10 to the shareholders of record on May 3. In total, since 2002, TEN has paid $10.66 in cash dividends or in excess of $461,000,000 and this compares with a listing price in our IPO of $7.50 The average yield since the New York Stock Exchange listing in 2000 and 2 is 5.25 percent per annum. That concludes the operational part of our presentation.
Paul will walk you through the financial highlights for the quarter the year. Paul?
Thank you, George, and welcome from a relatively sunny Athens. So despite a very difficult 2017, Tenn achieved a net income of $20,400,000 in the year before a loss of $3,900,000 on the sale of 2 vessels and impairment charges of $8,900,000 Quarter 4 ended with net income of $2,700,000 before the non cash non recurring items. Revenue after voyage expenses amounted to nearly $107,000,000 a near 8% increase over the previous year, due mainly to the addition of 7 U. S. The quarter 4 annual sorry, the quarter 4 annual average daily TCE rate was about $1,000 lower than 2016, a modest drop because three quarters of the fleet was on time charter.
This strategy allowed time charter revenue alone to cover all OpEx commissions, overhead and finance costs for the whole fleet and still leave a net surplus of $19,000,000 A further $21,000,000 of net revenue from spot vessels resulted in total net cash generation of $40,000,000 enough to cover much of the scheduled debt repayments in quarter 4. Our Aframaxes achieved good overall rates in quarter 4 in a bad market with an average daily TCE rate of over $19,000 and our Suezmaxes achieved an average of nearly $17,000 Product carrier rates were similar to the prior quarter 4, but have improved going into quarter 1. Higher total OpEx and depreciation were due to increased fleet size. However, the daily average OpEx per vessel remained low at $7,800 in quarter 4 $7,700 for the year, despite a 9% weakening of the dollar, which affected crew and repair costs. Average daily G and A costs remained low and actually fell 13% year on year.
Increases in finance costs in quarter 4 and in the year were mainly due to increases in loans and in LIBOR, partly offset by bunker hedge cash receipts and positive valuation. In quarter 4, scheduled loan repayments were $48,000,000 $36,000,000 was repaid on selling 2 older Suezmaxes, Eurochampion and Euroniki in a sale and leaseback deal, which freed $16,000,000 There was new debt in quarter 4 of $23,000,000 on our last new building delivery, bringing total debt to 1.76 $1,000,000,000 at year end, exactly the same as at the start of 2017. And net debt to capital fell to below 51% even after 7 new vessels. We have strong liquidity. We had $200,000,000 cash at year end.
We have secured cash flow from time charters and we aim to sell more of the elderly vessels in the near future. And this concludes my comments. And now I'll pass the call back to Nicolas.
Thank you, Paul, and looking forward to bigger numbers next time. Well, 2017 has been a very pivotal year for our company. It had the we were able to accomplish the largest growth in the history in the 25 year history of the company. And I think what is important to leave you with is what Paul mentioned that we increased the size of our fleet by 30%, and we kept our debt exactly the same as it was a year ago. So I think this is very, very important for this company.
It's paying about $15,000,000 of debt reduction a month and at the same time has able cash to pay to continue paying a dividend to its shareholders. And I think this is at the lowest part of the market. We hope that the way 2017 was operationally a very important year, 2018 to be a very important year for the turning around of our share price and the company's earnings. What we have done is we have positioned the company to be able to take advantage of this by maintaining our base. As Paul said, we cover all our operating expenses and a very big part of our financial cost just from the ships on time charter.
And then we let the ships on the spot market hopefully enjoy a significant net income and dividend distribution. And on that, I would like to open the floor for any questions. Thank you.
Thank you very much, sir. Our first question is from James Jang from Maxim Group. Please go ahead.
Hey, good afternoon guys. So there's news about possible fleet expansion. Are you guys looking to acquire any additional tonnage in this year?
Well, I mean, we I think we are looking right now to digest. I think George described it very well that we just had a very big bite last year of 15 vessels. So we're digesting it. I think so far the digestion is working well. And as soon as we digest, then of course, our appetite will start again, again only for vessels employment or secondhand ships.
And I think one of the segments that we are looking to increase our presence, and this was a very firm we've got a very firm decision from our board is on the gas side, on the LNG. We believe that LNG is a very good complementary feature to our existing fleet. And I think this is a priority. After 15 vessels in majority crude carriers, Last year, I think this is gas time according to our plans.
Okay, great. And so any updates on, I guess, plans for the Millennium? Are there any renewal plans for that? Or are you guys still operate? I mean, what's your plan?
I mean, just kind of up there in age, you took the charge this quarter. Is this something that you're looking to possibly divest this year?
Yes. I think being Greek, we tend to be naturally sentimental with our ships. But I think the millennium has served us very well. She's approaching her 28th year anniversary this summer. And from her delivery, she's 15 of those years on a long time charter, very lucrative time charter.
And then 3 of them continued again as a storage project and still doing very well. But I think you are right, we will be divesting. As Chairman of Intertango, I try to encourage the majority of my members to scrap vessels. If I did not scrap the Millennium, I think they will shoot me. So I think this is something we will be looking to divest from the ship within perhaps within this or next quarter.
Okay, great. Thank you. And just moving on to the age of the vessels. Are you looking I mean, with LDT prices kind of moving up, would you look to divest more older tonnage, some of the vessels moving into, I guess, 15, 16 years? Or is the Millennium deal with the vessels so far?
Well, the Millennium, the Celia are our first candidates. I mean, with the Millennium sale, we expect the sale at around $20,000,000 which is going to reduce debt by $12,000,000 and increase also we have another 8,000,000 in cash to the company's to our bank. So I think the same with the Celia. We'll be looking to divest from the older ships.
Okay, great. And the sale and leaseback transaction, can you give some color on that deal? I mean, is there a purchase when are the purchase options, if there are purchase options?
Yes. This is a pure sales and leaseback, which does not contain options. If you have options, then it stops being an operating lease and it becomes a financial lease and this is something you do not want to do. So there are no options in this. It's a 5 year straight transaction.
And if everything goes well, after 5 years, we're going to receive another $13,000,000 of cash from for the 2 vessels. Okay.
So I mean, it seems like you had enough cash. What was the rationale behind the transaction? Excuse me? What was the rationale behind the sale and leaseback?
This is a very good point. We have been working on sales and leaseback transactions for the company back in the '90s and the year 2000s. I think this is actually our 5th sales and leaseback transaction. All of them have proven to be very, very profitable for the company. We looked at it as another way to finance growth.
As you know, there are we're always we always like to look in the market. I think this has been a vehicle and it has given us the ability to sell 2 of our, call it, 1st generation Suezmax at what looks to be a very positive price. Okay.
That's fair. And I just have 2 more. One is with the Panamax charter extensions, can we assume those are just extensions at the prior terms with the prior profit sharing agreements in place?
They are they have profit sharing agreements. And I would say that there has been a reduction because of the market to the minimum. However, everything else is up for fifty-fifty profit share with no cap.
Okay. And with no cap. Okay, got you. And the final question is, I know you mentioned the LNG carriers. What are the shipyards like in terms of LNG carriers?
Are they marketing are they aggressively marketing these vessels? Or what's the outlook right now?
I would not say aggressively marketing because there are not that many clients to you need in order to aggressively market, it's easier to do dry cargo ships or even conventional tankers where you have a big clientele base.
Yes, I
would say there's about a dozen companies that look in gas and of course there is marketing. Right now, we believe that the values are on the lower side of because of the situation in the Far East. So it could be a good opportunity to have a couple of new vessels.
Okay. And would you place those orders at this point in the cycle speculatively? Or would you still stick to having a project tied to it?
We are very, very we keep our hands tied behind our back. We only release them when we have a project. So we do not sign anything without a project.
Got you. Okay. Thank you, guys. I'll drop off there.
Thank you. Thank you. See you soon.
Thank you very much. Our next question is from Michael Webber from Wells Fargo. Please go ahead.
Hey, good morning, guys. How are you? Hi, Mike. Good. Nick, I wanted to touch base on your LNG comment.
It's obviously pretty pointed and certainly seems like it's something you guys are going to be focusing on once you're done kind of digesting and rightsizing the balance sheet. I'm just curious, you mentioned not doing something on spec. And if my memory serves, I believe one of your carriers was on spec and it's like from several years ago. I'm just curious how you approach becoming a bigger presence in that market. It seems like the companies that have kind of nibbled around LNG have had a hard time really making money in that business.
The spot returns have actually been pretty horrible for the past 4 or 5 years and the asset value is never clear to a point where a countercyclical investor like yourself could actually step in at a price point that really made a lot of sense at a low breakeven. So I'm just curious, when you're looking at the market today, is it are you thinking an order with a couple of options and you're going smaller tenders? Are you trying to get in there and compete for larger 4 or 5 vessel tenders? Just curious how you think about approaching that this go around.
Yes. I mean, as I said, we have in order to keep you analysts busy, as you know, we have a very diversified energy fleet. And anything from product carriers to VLCCs LNGs to shuttle tankers. So this way, we keep our analysts looking at all the markets. However, to
We have no problem chasing our own sales to begin with, but we appreciate that.
I know, I know.
Perhaps you are the one of those who do not have a problem. And this is our company's strategy. We look at ourselves as a client driven operator rather than someone that we have invented that, let's say, SUEZ MAX or Aframax are the answer to the question. So we will be looking at increasing some of these diversified sections of our business. We are seeing today, whereas the spot market is not as strong as, let's say, 5 years ago, but it has come back to life.
There are contracts out there. We will be looking to increase the size of our fleet up to 6 vessels, as we have said this, by 2020. This is something we've been saying I think in the last couple of years, be it doing 2 option 2 ships. Values today are about $30,000,000 to $40,000,000 cheaper than where they were. The reason we have not gone head over heels, as they say, in gas is the changes in technology.
But you rightly said, we chartered our we ordered our first ship with a 5 year time charter at the time. The Neo Energy is and has been one of our most profitable ships. It kept the company's profitability going during the tanker market slump in 2013 and 'twelve. And she was earning $80,000 a day. And I think she had a break all in breakeven of $27 or something like that.
So it was a cash cow. And she's still right now, she's working on a FSRU project very positively. But technology changes, and that's why we have not we have waited for technology to settle down. I start to believe that we are with the new mega type engines and the XTS and the size of the ship at around the 180,000 cubic, we are for the next at least foreseeable, let's call it 10 years in a more stable environment technologically. And that's why we're starting to look at it and asset values are also lower.
So I think it's a good time to increase the size up to 6 vessels.
Got you. When you said vessel values are $30,000,000 to $40,000,000 inside of previous levels, is that just a generic comment? Or do you think you can buy something inside of $180,000,000 kind of in the $170,000,000 range?
Talking about gas carriers, not the whole industry or not the whole tanker. Talking about rebuilding gas carriers, yes, I think we see ships that were about to need the 220s to 10s to 20s are around the 190s. Okay.
That makes sense. And then you mentioned I guess you got the one asset, I believe it's in China on the storage contracts. It seems like you've got a decent relationship there. Hudong is actively trying to increase their presence in the LNG market. If memory, I think Dynacom is actually building a couple of FSRUs there as well.
Would that be something would you look at that if you get the price point cheap enough? Or I think there's actually I think Korean built is actually more attractively priced at this point, so it might be a nonstarter. But what's the likelihood you could actually go somewhere besides the big three herds? Not very yet. Okay.
Fair enough. Very diplomatic, I appreciate that. Okay. All right. Well, listen, I appreciate the time, guys.
Thank you.
Thank you.
Thank you very much. There are currently no further questions waiting, sir. I'll hand the call back to yourself.
Okay. Well, thank you very much. It has been a very interesting year and a very challenging start for 2018. We believe, as we said, that we are off the bottom and looking for changes. Looking at the markets, I think we are where the container market was in 2016 and the dry cargo market in 2017.
So I expect that after Posidonia when everybody gets sober and back to their offices, we're going to see the tanker market turning a corner and we are preparing the company for that. I would like to thank all of our associates, our colleagues, mainly are men and women on board the ships that operate those vessels 24 hours a day safely, and I'm knocking on wood, together with the Tsakos Group and all their support on the technical side that has brought us where we are today. And looking forward for the next 25 years of continuous profitability. We are, as Mr. Bonnard, as you said, bringing the opening bell on the Stock Exchange, celebrating our 25 years as a public company on Wednesday.
And the management will be here in New York for the next 10 days. So if you we will be very happy to have a 1 on 1 presentations with any of you that you'll be interested. And we will be having also an Analyst Day on Friday just before Shell Patux Day to get everybody drunk for the event. So with that in mind, thank you very much and looking forward to seeing you this week in New York. Thank you.
Thank
you very much, sir. Ladies and gentlemen, that does conclude the conference. You may now all disconnect your lines.