Okeanis Eco Tankers Q3 2024 Earnings Call Transcript

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Provided by Quartr
November 8, 2024

Key Takeaways

  • Strong Q3 performance with fleet-wide TCE of ~$44,000/day, adjusted EBITDA of $37.9 M, net profit $14.5 M, EPS $0.45, and full dividend payout of $0.45/share.
  • Healthy balance sheet post-refinancing: $56 M cash, $658 M debt, 59% book leverage, 4% market net LTV, and estimated $7.5 M in first-year financing savings.
  • Competitive fleet edge with 14 modern eco-tankers (5-year average age), fully scrubber-fitted, delivering 14% and 27% TCE outperformance on VLCCs and Suezmaxes respectively vs peers.
  • Completed 5 of 6 planned drydocks ~10% under budget (~$2 M/vessel), using high-spec paint and graphene propeller coating to target a 10% fuel consumption benefit and $1 M annual savings.
  • Q4 has underperformed expectations so far, with 66% of days fixed at $43,800/day, but management sees potential winter volatility and favorable medium-term fundamentals driven by an aging fleet and limited newbuild supply.
AI Generated. May Contain Errors.
Earnings Conference Call
Okeanis Eco Tankers Q3 2024
00:00 / 00:00

There are 4 speakers on the call.

Operator

Welcome to OET's Third Quarter 20 24 Financial Results Presentation. We will begin shortly. Aristides, Alafrousos, CEO and Araklis Barounis, CFO of Okeanis Eco Tankers will take you through the presentation. I would like to advise you that this session is being recorded. Herakles will begin the presentation now.

Speaker 1

Thank you. Hi, everyone. Welcome to the presentation of Okemne's Eco Tankers' results for the Q3 of 2024. We will discuss matters that are forward looking nature and actual results may differ from the expectations reflected in such forward looking statements. Please read through the relevant disclaimer on slide 2.

Speaker 1

So starting on slide 4 and the executive summary. I'm pleased to present the highlights of the Q3 of 2024. We continue on the track of very healthy commercial and financial results. We achieved fleet wide time charter equivalent of about $44,000 per vessel per day. Our VNCCs were at $43,000 and our Suezmaxes at 45,000.

Speaker 1

We report adjusted EBITDA of $37,900,000 adjusted net profit of $14,500,000 and adjusted EPS of $0.45 Continuing to deliver on our commitment to distribute value to our shareholders, our Board declared a 10th consecutive capital distribution of $0.45 per share. That is the full payout of our EPS for the quarter. On a 4 quarter's rolling basis, we have distributed $3.31 per share or 94 percent of our adjusted net income. During the quarter, we have successfully completed our 5 year drydock for the Knysos Keithnos, the Knysos Rynia and the Knysos Anaph. With 5 of our 6 planned drydocks this year behind us, we look forward to completing the Mesos Donoussa later this month.

Speaker 1

On Slide 5, we show the detail of our income statement for the quarter and the 1st 9 months of the year. PC revenue for the 9 month period stood at over $212,000,000 EBITDA was approximately $167,000,000 and net income was over $95,000,000 or $2.97 per share. Moving on to Slide 6 and our balance sheet. We ended the quarter with $56,000,000 of cash. We also had a working capital increase with our trade receivables standing at $44,000,000 and our balance sheet debt stood at $658,000,000 On slide 7, we illustrate our most important competitive advantage, our fleet.

Speaker 1

This is the main driver behind our operational and commercial success. Our 14 vessels, all build at 1st class yards in Korea and Japan have an average age of 5 years. That is the youngest crude oil tanker fleet amongst listed peers. And we are also the only pure eco and fully scrubber fitted fleet. These elements allow us to set a benchmark above the spot market established by conventional or mixed fleets.

Speaker 1

Slide 8. Moving on to our capital structure. Post the recent refinancing exercise, we successfully set our robust balance sheet. Our book leverage stands at 59%, while our market adjusted net LTV is 4%. Our financings are a mix of traditional mortgage backed banking loans as well as same and leasebacks and their financiers are balanced with both traditional European shipping banks as well as Asian banks and leasing houses.

Speaker 1

We're particularly happy to have relationships in all these markets, which will give us flexibility in the future. Flipping over to Slide 9, we walk in detail through the refis back in August. Since we do not need did not have the need for more capital, we were able to source funding with relatively low LTVs and we focused on adding flexibility, improved pricing. We have estimated that we're saving $7,500,000 in our 1st year and extended maturities. And our current maturity tower is well balanced.

Speaker 1

Other than the 2 legacy leases on Deringia and Despotico, whose purchase options kick in the first half of twenty twenty six, all other maturities are staggered between 2028 and 2,031. We have plenty of time to focus on the Iranian and the disposic CO, but we look forward to the opportunity of further optimizing our structure then. In the meantime, while we're not actively seeking further funding, we're always on the lookout for opportunities that could further add value in an accretive way to our shareholders. I'm now passing over the presentation to Aristides for the commercial market update.

Speaker 2

Thank you. This may be one of the quarters where your part is more interesting than mine, actually. Q3 was a weak quarter with consistent weakening beginning in June and with one period of weak strength in late July on the VLCCs. The market was hampered by weak refining margins, poor Chinese demand and refinery turnarounds. We completed 3 dry docks as planned and repositioned 4 ships to the West.

Speaker 2

On 3 of these ships, we took advantage of the strength in the clean market to clean them up and move diesel from the Raven Gulf to Europe. On one of our Western vessels, we found a favorable cargo to take these that earned a big premium to staying wet. The Suezmax market was more stable in Q3 and tailed off towards the end of the quarter. We traded our Suez primarily in the West, fixing cargoes from the Mediterranean in Nor West Africa. And on 2 of our ships, we contracted fronthaul voyages from the West to the East that outperformed the local voyages by a big margin and we took those.

Speaker 2

Given that we have a Western focus on how we trade our fleet, we immediately come back on these ships and brought them back into home territory. It overall was an underwhelming quarter that required a lot of hard work and optimization to produce this result. Despite the seasonal weakness prevailing in both segments, towards the end of the quarter, we achieved a fleet wide TCE of $43,900 per operating base. Our VLCCs generated $43,100 per day in the spot market, that's a 14% outperformance relative to all our tanker peers who have reported Q3 earnings. Our Suezmax generated $44,800 per spot day, a 27% outperformance relative to our tanker peers with reported Q3 earnings.

Speaker 2

And these numbers reflect our actual book TCE revenue within the quarter as per our accounting standards. And we flip over to Slide 12 for a drydock update. As we mentioned in previous quarters, we plan our drydocks in order for the ships to be available for an unexpected and wonderful Q4. We executed our plan almost perfectly, but the market isn't yet doing its part. We completed drydock on 5 of our 6 VLCCs, which have their required special survey this year.

Speaker 2

Niso Nusa is the final VLCC to go into drydock and she will begin her survey shortly. In terms of budget, the dry docks were completed about 10% below our internal budget at around $2,000,000 per vessel of all inclusive. Dollars 600,000 of this was allocated to using high spec paint that will improve performance. It takes time for our performance department to gather sample data to compare the current consumption to when the vessel was in a similar condition previously. But the results we have so far are very encouraging.

Speaker 2

We are currently projecting a 10% consumption benefit over a 5 year period with an annual saving for this year only of $1,000,000 We also decided to use a new graphene propeller coating on the propeller, which will reduce marine growth and also contribute to better propeller performance. The total average off hire time of 29 days includes preparation for dry dock entry after completing the previous voyage. The average duration at the yard was closer to 20 days. Moving on to Q4 guidance on Slide 15. So far, Q4 has materially underperformed our expectations.

Speaker 2

Many factors such as poor ARBs keeping Atlantic cargoes in the West, low exports in the U. S. Due to hurricane, weak Chinese demand, terrible refining margins have met together to keep pressure on the freight market. Even winter temperatures and weather delays have not peaked in yet. Right now in Athens, it's 20 degrees and sunny.

Speaker 2

I do believe we will see winter volatility at some point this winter, and this will allow to lock in some good fixtures. But we need to be patient and remain positioned to grab these when they come. In Q4, we have so far fixed another backhaul on the VLCC that we cleaned up and turned into an LR4 here. The rate we achieved on this voyage outperformed the DPP the dirty market backhaul earnings and due to the longer duration because the voyage is longer, we could open later in the quarter and hopefully stronger market will be Our focus is on maintaining position to fix an attractive front haul business when rates firm. But we're not fixated on this and we take opportunity to fix long haul business East when we find good opportunities and it materially outperforms the local voyages.

Speaker 2

So far in Q4, we have fixed 66 percent of our FEEDY days at $43,800 per day. And that breaks down to 63,000 I'm sorry, 63 percent of our VLCC spot days at $46,900 per day, a 26% outperformance and 70% of our Steward MAX days at $40,200 per day, a 23% outperformance. And both of these figures are relative to our senior peers who have reported their Q4 fixtures. Continuing on to the next slide. As we do every quarter, we emphasize our consistent outperformance relative to our peers.

Speaker 2

On Slide 13, we highlight how our ability to adapt and capitalize on market opportunities has resulted in sustained success regardless of market fluctuations. We are dedicated to maintaining this level of consistency moving forward. And as we will discuss in the following slides, the outlook for the next year is highly promising. Our ability to outperform is even more pronounced in strong market conditions. Now let's look at the market outlook.

Speaker 2

Although as alluded to already, the market has been somewhat below expectations, it's still profitable with strong fundamentals, especially on the supply side for the crude sector. Starting with supply side dynamics in the VLC and Suezmax segment, we see an encouraging outlook supported by controlled order book and an aging fleet composition. Nearly 35% of the fleet is over 15 years old and will likely face pressure as it nears retirement or recycling. Currently, 17% of the fleet and Suezmax fleet 17% of the Suezmax NBL to seat fleet are over 20 years old, making them proud and candidates for recycling in the near term. 2028, we anticipate the number of over 20 year old ships in the Suez and VLT segment to be 30% or higher.

Speaker 2

That's a big figure. In addition to above, in both asset classes, approximately 25% of non echo vessels are expected to face challenges in meeting regulatory requirements for the EEXI and CII compliance. These vessels may be forced into slow steaming in order to comply with these regulations. When we compare the Taging fleet with an order book of only 8% on the VLCCs and 16% on the Suezmaxes, it is clear that the inflow of new tonnage is controlled and potentially still under supply. The supply picture becomes favorable when we consider yard capacity.

Speaker 2

As shown in Slide 16, we're entering a new era for better supply with 2 major challenge, unaging fleet and a significant reduction in yard capacity. Since 2010, global yard capacity is nearly half, representing a 58% reduction. This decline in yard capacity is significant. It limits replacement potential and increases competition for newbuild plots, especially as yards prioritize higher margin projects like LNG carriers and containers. As mentioned on the previous slide, we have substantial replacement need in the tanker market.

Speaker 2

By 2,030, the number of tankers over 20 years old will double the current order book. This creates a potential supply fleet as vessels leave the market faster than new ones are filled. Even if the order book accelerates, the current well into the 28th for meaningful orders, it's hard to envision an oversupplied market. In summary, the combination of shrinking our capacity and aging fleet creates more competitive supply environment. With limited newbuild capacity, we anticipate that the fleet renewal struggle to keep pace with the current candidates in both segments.

Speaker 2

The demand side is less straightforward and compared to the supply equation. We expect steady growth albeit at a slower pace. However, one positive factor is the ton mile effect. Currently, most crude oil supply originates from the West, while most demand comes from the East, resulting in longer shipping. This imbalance supports higher ton mile demand as supply must be sourced from more distant regions to meet global consumption needs.

Speaker 2

Additionally, demand acts as a driver of volatility, and we believe that even minor positive signs could have a substantial impact on rates. As traders, we appreciate volatility in our history shows that we tend to outperform during volatile periods. To sum up, we believe there is a short term volatility. However, medium term fundamentals is very favorable for the segment. Handing back to you, operator.

Operator

Thank you. First question comes from Liam Burke with B. Riley. Your line is open. Please go ahead.

Speaker 3

Yes. Thank you. I was curious to hear in terms of directionally, I know the quarter got off to a tough start on the partial fixtures. Directionally, could you give us any sense on how the Croda is progressing or are we still seeing weakness as we finish the year?

Speaker 2

Hello. Thanks for your question. You can always look at the indexes that are printed to roughly guide where the market is. But given that we like the triangular vessels, we feel well, we can consistently outperform these indexes. I would say that in the last week, we've seen rates bottom out on from the AG and from the WACCs.

Speaker 2

Today, the sentiment is a bit stronger. And we've seen rates push up a couple of points from the AG on the TD3 run. On the smaller segments like Suezmaxes and Aframaxes, it still needs a little bit of cargo push to see rates pick up. But for the moment, today's picture is rates continue at similar levels to where we reported our earnings so far. But hopefully in the next 2, 3 weeks, we'll see whether it's weather created delays or more cargoes coming into the market and we can see rates rally further.

Speaker 1

Leon, do you have any other follow-up?

Speaker 3

I do. I'm sorry. You've always expressed that you're very happy with the size of your capacity and the formation of the fleet. If asset value started backing off enough, would there be any consideration to grow the fleet?

Speaker 1

Look, we've talked about this in the past. One of the difficulties in answering a question like that is that we focus on a very specific sub segment of the business. So our scope is very, very narrow in terms of the tonnage that we would look at, modern, scrubber fitted, AECO. So the opportunities haven't been there in general to pursue transactions that make sense. Now having said that, yes, we are perfectly happy with our size.

Speaker 1

But if we were able to source an opportunity that does fit within the scope and we could structure it

Speaker 2

the right way, I accrete it

Speaker 1

to shareholders And without jeopardizing the dividend capacity, we would look at it. But we have been disciplined. We will continue to be disciplined in the future, and we just focus on maximizing returns.

Speaker 3

Great. Thank you very much.

Speaker 1

Thanks, Ian.

Operator

This concludes our Q and A. I'll now hand back to Heraklis Barounis for any final remarks.

Speaker 1

Perfect. Thanks. Thanks everyone for listening in. I guess we'll speak again in February.

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