Earnings Call Transcript - TEN Q4 2023

Operator, Operator

Ladies and gentlemen, thank you for standing by, and welcome to Tsakos Energy Navigation Conference Call on the Fourth Quarter 2023 Financial Results. We have with us Mr. Takis Arapoglou, Chairman of the Board; Dr. Nikolas Tsakos, Founder 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. And now, I will pass the floor to Mr. Nicolas Bornozis, President of Capital Link. Please go ahead, sir.

Nicolas Bornozis, President of Capital Link

Thank you very much, and good morning to all of our participants. I am Nicolas Bornozis of Capital Link, Investor Relations Advisor to Tsakos Energy Navigation. This morning, the company publicly released its financial results for the fourth quarter and the year ended December 31, 2023. In case we do not have a copy of today's earnings release, please call us at 212-661-7566 or email us, and we will have a copy for you e-mailed 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. 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 are user-controlled, which means that by clicking on the proper button, you can move to the next or the previous slide on your own. And 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 that may affect TEN's business prospects and results of operations. And with that, I would like to pass the floor to Mr. Arapoglou, the Chairman of Tsakos Energy Navigation. Mr. Arapoglou, please go ahead, sir.

Takis Arapoglou, Chairman

Thank you, Nicolas. Good morning, everyone. Thank you for joining our call today. TEN continues to deliver very strong financial performance based on positive market fundamentals and best-in-class operational performance. At the same time, the company keeps renewing its fleet, selling all the tonnage at today's high prices and acquiring eco-friendly vessels, increasing its footprint. It also reinforces its leading position as a very successful operator of specialized modern dynamically positioned tankers. All these are highly accretive acquisitions. The results of which are not included in today's results but will definitely contribute very positively going forward, allowing us to continue our strong growth, a growth that we have demonstrated quarter after quarter. We're also using this current positive market to increase the number of vessels on time charter. But at the same time, we keep enough vessels to benefit from the very attractive current returns of the spot market and profit-sharing arrangements, driven by the otherwise quite unfortunate geopolitical developments. In doing so, we continue to maintain a very healthy cash balance, allowing us to be flexible and capitalize on acquisition opportunities as they arise. And to continue uninterruptedly to pay sizable dividends to reward our shareholders, we're proposing as a first semiannual installment $0.60. So on behalf of the Board, I wish to once again congratulate Nikos Tsakos and his team for the excellent performance and wish them continued success going forward. Thank you from me, and over to Nikos Tsakos.

Nikolas Tsakos, CEO

Chairman, thank you very much. And first of all, we would like to express our support to the victims and all affected by the tragic events in Delaware. We hope that very soon things will go back to normal with a minimum loss of life. As for TEN, we concluded our 30th year, a milestone with another record year, and we are looking forward to continuing the trend. As our Chairman said, the growth that has been embedded is not yet portrayed in these results, but hopefully, it will be reflected in the remainder of 2024. We will grow our fleet almost by 10% by the middle of the coming year. In the meantime, the fundamentals of the industry, the long-term fundamentals still look very positive. They look positive not only because of the geopolitical events and the delays and closures in the canal but also because, long-term, we are seeing a very small replacement of the fleet with less than 7%, and in some categories, much less than that, like the larger ships, the VLCCs. On top of that, we have a very aging fleet and a shadow fleet, which is close to 20% in some of the major categories. Without trying to foresee the future, we believe that 2024 will be at least as good for us as the year we are currently enjoying. This has been a springboard year, a milestone year for us. We have been able to renew our fleet drastically, representing the largest growth in our history, which shows that we are 30 years old but have not aged. As our Chairman mentioned, this year has seen us sell 9 vessels with an average age of 18.5 years and adding 18 vessels with an average age of 1.3 years, of which 8 will be contributing immediately to our bottom line very soon. Additionally, we are adding 1.5 million deadweight tons in our fleet's earning capacity and carrying capacity. This 30th year has truly been a significant growth springboard, and we have been able to continue this growth while also reducing our debt and increasing our dividend, as the Chairman kindly mentioned, by doubling it at least for the first six months of the year. We have maintained very strong cash reserves. With that as an introduction, we would like to thank everyone for their support over our 30 years. While this has been our second consecutive record year, we hope to maintain the same momentum with the new acquisitions and, as the Chairman said, the very accretive transactions that we have secured. Now I will hand it over to our President, Mr. George Saroglou, to provide us with a little more detail on what's happening out there.

George Saroglou, President

Thank you, Nikos, and thank you to the whole team. Good morning to all of you joining our earnings call today. 2023 has been a banner year for TEN. We celebrated our 30th anniversary as a public company and posted another record year, the second consecutive record year after 2022. Key takeaways for TEN during the fourth quarter and 2023 include the delivery of the Company's first two dual fuel LNG powered Aframax tankers in a series of four new buildings of high-spec, eco-designed vessels built against long-term employment with major oil concerns. In early January 2024, we took delivery of the remaining two. The delivery of these four vessels marks TEN's entrance into greener vessels. We continued the sale of older first-generation vessels. During 2023, TEN sold eight tankers built between 2005 and 2007. In January 2024, we announced the sale of a 2005 built Suezmax tanker. The nine tankers we sold since January 1, 2023, had an average age of 18.5 years. At the same time, we continue to grow the company and replace these first-generation vessels with newbuilding orders that fit existing transportation requirements of term company clients. We announced today, in the press release, the signing of a newbuilding contract for one more shuttle tanker, the third newbuilding under construction against a long-term charter with a major energy concern. This brings our current newbuilding order book to seven vessels. In addition, we recently announced the acquisitions of a high-spec environmentally friendly 5-vessel fleet from Viken. The Viken acquisition includes two 2023-built dual fuel LNG powered LR2 Aframax tankers, one 2019 built super-eco Suezmax, and two 1A ice-class scrubber-fitted Aframax tankers, built in 2018 and 2019, respectively. We took delivery of the first vessel, the DF Montmartre, yesterday. We expect to take delivery of the remaining four vessels from April until June of this year. All five vessels are chartered to a major European energy concern. The freight market was strong last year and remains strong as we speak. We continue to renew time charters at higher tank charter rates. Oil majors continue to fix vessels forward, which is a testament to a market that is expected to sustain current freight levels. The order book continues to be low due to the uncertainty of availability and affordability of alternative fuels other than biofuel and LNG currently. We continue to experience the largest change in trade flows, ongoing crude and oil product movements as a result of Western sanctions on Russian seaborne oil, and more recently on changes in the production of the Red Sea as a result of the attacks on merchant vessels. Many charterers are rerouting vessels through the Cape of Good Hope instead of the shorter distance through the Red Sea and the Suez Canal to avoid being attacked. Most of 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 has been replaced with oil from the United States, West Africa, Guyana, Brazil, and the Middle East, creating a positive ton-mile multiplier effect for tanker demand and freight rates. At the same time, global oil demand continues to grow post-COVID. 2024 is expected to be another record year for global oil demand, rising on average to 1.32 million barrels per day versus approximately 1.18 million barrels per day in 2023. Of course, there are global headwinds that we have acknowledged and are on our radar screens for quite some time now, like inflation, which might be coming down, but we could end up with higher interest rates for longer, the ongoing situations in Ukraine and Gaza, and the OPEC plus production cuts and voluntary cuts by Saudi Arabia and Russia, which have been extended at least until the end of the second quarter of 2024, if not more probably until the end of the year. However, we have a global economy that continues to grow, with the International Monetary Fund in its most recent report anticipating 2024 to see global economic growth of 3.1% and 3.2% in 2025. As mentioned above, oil demand is expected to grow by another 1.3 million barrels per day in 2024 compared to 2023. Strong non-OPEC growth from the United States, Canada, Guyana, and Brazil will counterbalance any OPEC production cuts, and tanker fundamentals continue to favor a strong market for the next 2 to 3 years.

Paul Durham, CFO

Thank you, George. Just a few remarks. TEN achieved a net income in the year amounting to $300 million. Additionally, there was a further $500 million from EBITDA, altogether adding to the company's considerable cash reserves. Revenue in the fourth quarter totaled $220 million, while total revenues for the year amounted to almost $900 million, representing a 3.4% increase over the prior year. Time charters generated about $540 million, of which $72 million related to profit share. Total operating income for the year amounted to almost $390 million, a significant increase of 53% over the previous year. Our average daily TCE for the year amounted to $37,000 on average in a market that effectively operated with near full employment for our vessels. In the year, eight vessels underwent dry docking. In the fourth quarter, vessel operating expenses decreased by 2%, while voyage expenses decreased by 21%. Our new vessel deliveries are expected soon, and vessel financing is mostly covered. We believe these new buildings are expected to generate strong returns over the years. In the meantime, the company will continue, as always, to ensure perfect debt service. Given our cash availability, the use of funds will remain a priority, and in this respect, we are acquiring 11 new excellent vessels and preparing plans accordingly regarding the company's future. Finally, we believe that the production cuts that hit demand in the latter part of last year were temporary and that cargo growth has already begun to swell again in the early part of this year.

Nikolas Tsakos, CEO

Thank you, Paul. Good news does not have to come in many words. Thank you very much for this. I think, as we have seen, it has been a very productive year, setting the base for the company's future. Many people, since we announce every year a record year, believe that at some stage, we have reached the peak of our profitability. We hope that this is not the case and by setting the new ships, and I think, George, if you can put the slide on, I think of the future growth, not the one of the ships, that’s the one. We might be including a couple of new acquisitions and opportunities. Our newbuilding department is closely working on securing additional very accretive transactions for the 16 vessels that are out there. Hopefully, we can announce something within April on that. Now, we would like to open the floor for any comments or questions. Thank you.

Operator, Operator

Our first questions come from Climent Molins with Value Investor's Edge.

Climent Molins, Analyst

I wanted to start by asking about your fleet positioning. You already provided some commentary on it, but over the past couple of years, you've pursued quite an aggressive plan to renew the fleet, and the recent Beacon acquisition further improved the age profile. You mentioned you're working on several additional opportunities with newbuildings. Should we expect the size of the fleet to grow further, or will the older side of the fleet be sold in conjunction with additional acquisitions?

Nikolas Tsakos, CEO

Well, we are looking, this is an ongoing growing concern for the company. However, in the strong market environment, we are looking. We have many vessels approaching graduation years from the TEN academy and we wish them to graduate profitably for the rest of the fleet. By selling the 9 vessels last year and part of this year, we added $160 million net to our cash reserve, which we have used to grow the fleet further. The growth is significant; selling 9 vessels and actually replacing them with double that. The answer is, there will be growth, but there will also be investments in first-generation vessels.

Climent Molins, Analyst

I also wanted to ask about the Neo Energy, which came off contract in February. Could you talk a bit about the prospects for the vessel?

Nikolas Tsakos, CEO

Well, the Neo Energy has been one of our luckiest vessels since it was built on February 7, 2007. It has always earned one of our highest time charters for a year and a half, in excess of $115,000 a day. We believe that it will maintain its performance, and you will hear an announcement soon.

Climent Molins, Analyst

And final question from me. On the dividend side, you mentioned you expect to distribute another dividend later this year. Could you provide some commentary on the amount you expect to distribute?

Nikolas Tsakos, CEO

Well, our Chairman is responsible for the dividend. Takis?

Takis Arapoglou, Chairman

We are approaching the middle of the year. We felt that $0.60 represents our performance last year and how things are looking right now. The second installment of the dividend depends on the rest of the year, and we cannot really make any predictions because we're not allowed to. However, we are confident that our performance will continue to be strong.

Operator, Operator

I'm showing no further questions in the queue. I would like to pass the call back to management for any closing remarks.

Nikolas Tsakos, CEO

From our side, we would like to take the opportunity to thank our shareholders for their support. The management, being the main shareholder, is working to achieve results for all of us. Regardless of the geopolitical situation we are facing, the fundamentals show that the market, which is underbuilt, is maintaining itself. Less than 7% of the fleet is on order, coupled with an aging fleet and a shadow fleet that we do not expect will be present in normal trading routes. We conservatively anticipate another couple of years of significant growth, and we are placing the company to take advantage of that. From our side, we'd like to once again pass our support to all victims of the tragic incident in Delaware, and wish everybody a happy and peaceful Easter going forward. Thank you very much.

Operator, Operator

Thank you. That does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.