Okeanis Eco Tankers Q4 2023 Earnings Call Transcript

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February 29, 2024

There are 5 speakers on the call.

Operator

Hello, and welcome to the OAT's 4th Quarter and Fiscal Year 2023 Financial Results Presentation. We will begin shortly. Aristides Salafousos, CEO and Iraklis Barounis, CFO of Okeani Seiko Tankers, will take you through the presentation. They will be pleased to address any question raised at the end of the call. I would like to advise you that this session is being recorded.

Operator

Iraklis will now begin the presentation. Thank you.

Speaker 1

Hi, everyone. Welcome to the presentation of the KMA Cycle Tankers results for the Q4 and fiscal year 2023. We will discuss matters of the forward looking nature and actual results may differ from the expectations reflected in such forward looking statements. Please read the relevant disclaimer on Slide 2. We're going to start on Slide 4 and the executive summary.

Speaker 1

I'm pleased to present the highlights of the Q4 of 2023, finishing off a record year for us. We achieved feet YTCE of over $45,000 per vessel per day, and that includes for most of the quarter our last 2 legacy Suezmax time charters. Spot rates for VLCCs of $45,000 and spot Suezmaxes of $52,000 We reported adjusted EBITDA of $44,200,000 adjusted net profit of $20,400,000 and adjusted EPS of $0.63 Our Board declared a 7th consecutive capital distribution of $0.66 per share, which is 100 percent of our reported EPS, continuing the promise to deliver value

Speaker 2

to our shareholders. Over the

Speaker 1

last 4 quarters, we have distributed $4.36 per share against earnings of $4.5 on both an adjusted and reported basis by approximately 97%. On a nominal basis, that's $140,000,000 Our 4th quarter was of particular importance to us as in December we affected the listing at the New York Stock Exchange. We're quite pleased with the early signs coming from New York. We have already seen an increase of approximately 50% in trading volume since we became dual listed. And what is interesting to observe is that within 2.5 months, approximately 40% of total volume is traded out of New York.

Speaker 1

In February alone, this was already 45%. This gives us the confidence that expanding our investor reach in the U. S. Is in the right direction as we take the platform forward. I will talk about our latest refinancings at a later slide.

Speaker 1

So moving on to Slide 5. I've already went through the highlights of the Q4, so let's spend a bit of time on 2023. We achieved record results in terms of revenue, EBITDA and net income. TC revenue for the year stood at almost $300,000,000 that's a 54% increase from a strong 2022. EBITDA of $242,000,000 that's 72% increase year on year and net profit of $145,000,000 also 72% increase from 2022.

Speaker 1

Our results took advantage of the strong tailwinds coming from the tankers market, our particularly modern and fuel efficiently and as more of our vessels during the course of the year ended their time charters, our competitive commercial performance in the spot market. Moving on to Slide 6 and our balance sheet. As of year end, we have cash of approximately $55,000,000 that's complemented by a particularly larger than usual trade receivables balance of $57,000,000 attributed to the timing of payment of freight by our clients. Most rate receivables have since been collected, of course. Our debt as of end December stood at 693,000,000 dollars Book leverage came in at 61%, while market adjusted LTV based on broker values stood at approximately 45% to 50%.

Speaker 1

On Slide 7, we summarize our corporate and capital structure as well as our employment profile. On that front since late December, our entire fleet is stayed in the spot market. In the last quarter, we talked about gaining momentum from our 2 refinancing transactions from the summer and October of last year as we negotiated the upcoming purchase options of the Milos and the Polyagos from the legacy expensive leases. As promised, in February, we closed the transaction of purchasing Bacta Milos, executing a Bacta facility priced at 175 basis points over sulfur with maturity in 2,030. We have formally declared the purchase option for the Polyolos, which is due to close in June of this year.

Speaker 1

We're optimistic that we can continue utilizing the positive momentum, the excellent relationships with our financiers, both existing and new ones, as well as the position of the company in achieving at least similarly significant improvement in our capital structure as we did with the Milos. Separately, but indicative of our ability to source accretive transactions within our capital structure, We also announced in January a set of transactions with our Chinese leasing financiers. We essentially negotiated the deal where on our 2 existing leases on the Nissos Kea and the Nissos Mikuya, we reduced pricing by approximately 60 basis points, extended maturities by 7 quarters to 2,030 and 2,031 respectively, and also increased flexibility for the future by dropping certain penalties in case of earlier financing. We also brought in a 3rd vessel in the portfolio of our Asian leased vessels, the NIS Osanahe, financing it at 190 basis points over sulfur with maturity in 2,031. The transactions for all four vessels, Nios, Nios Kea, Nios Nikulya, Nios Anape, all closed earlier this month.

Speaker 1

Overall, the transactions executed in the last 9 months have improved their cost of debt on average by approximately 1% on 9 of our 14 vessels. We expect the Polyagos milestone to further improve our interest cost and we are continuously on the lookout for deals to opportunistically optimize our capital I'm now passing over the presentation to Aristides for the fun part.

Speaker 2

Thank you, Ekli. Looking at our commercial performance in Q4, Q4 rebounded with seasonal volatility after a week in relative terms Q3. Due to the extended OPEC plus cuts, we didn't get the Q4 that we're all dreaming of. But the silver lining of this is that the OPEC plus cut OPEC plus continues to focus on managing inventory levels, which we believe will continue to draw and eventually require more barrels to be brought back to the market. This would lead to the explosive market that we're all waiting for.

Speaker 2

And we'll expand on this a bit later in the presentation. We continue to employ our strategy of predominantly positioning our fleet in the West and taking the opportunity when the market firms to fix longer voyages to these. Nissos Sipnos and Nissos Sipnos were redelivered from their long term time charters and now the OET fleet is 100% exposed to the spot market. We also concluded our final drydock of the 3rd special survey of Kimo Losar 2018 built Japanese Suezmax. We upgraded the paint specification on this vessel, which is currently performing about 7% better than the previous paint.

Speaker 2

The vessel is actually more efficient today than she was when she was first delivered to us from the yard. We intend to use a similar certification of paint on our VLCCs that are going through their drydock this year, the 5 2019 build ships, the 6, during and 1 in 2025. During the quarter, we achieved a fleet YTC of $45,400 per day including our time charters. Our VLCCs generated $45,200 per day in the spot market, a 4% outperformance relative to our tanker peers that have reported Q4 earnings. Our Suezmaxes generated $51,800 per spot day, a 17% outperformance relative to our tanker peers who have reported Q4 These numbers reflect our actual book TC revenue within the quarter as per our accounting standards, which includes several days, especially related to our Suezmaxes of validates for which we do not record any revenue.

Speaker 2

Moving on to Slide 10 for guidance on Q1. Q1 started with strength and volatility, which we're luckily able to capitalize on. The Red Sea deviations have so far benefited other segments of the shipping industry more than the crude fleet. Although due to the additional cost of diverting crude around Africa, this situation created most opportunities for VLCCs within the crude fleet. We saw usual Suezmax stems from the AG West either being parceled up and moving on to VLCC, like we fixed on the Nisha Sanofi or being sold east instead and again being parceled up on VLCCs.

Speaker 2

Another effect was met based cargoes that are sold east and transported via Suez Canal and Suezmaxes are also being parceled up on VLCCs and sailing around Africa, like we fixed on the Suezmaxes There's some random music playing. We diverted 3 Suezmax that were originally fixed from AG West via Suez to sail around Africa. 1 second while we try to turn off the music.

Speaker 1

Sorry, everyone. I mean,

Speaker 2

hopefully, the service who provides us the conference will solve this in

Speaker 1

a couple of seconds, minutes. Just

Speaker 2

Hello, apologies for that. So I guess I had just finished explaining that we've seen some changes in the way that the crude is moving due to the Red Sea diversion, it was moving on Suezmaxes and because of the efficiency of using a VLC around wind sail around Africa, we've seen more VLCCs being substituted into 2 Suezmax cargoes. And that we've done 1 on the Suezanape to go AG West that should have been 2 Suezmax cargoes and we've also fixed one similar on the Suez Despoitica that originally would have been 2 Suezmax cargoes from the Black Sea to Korea. It's now one VLCC cargo that's been in Malta and go around Africa. We also diverted 3 Suezmaxes that were originally fixed from the Arabian Gulf West via Suez and instead these ships will they have sailed around Africa.

Speaker 2

This did benefit us by prolonging the voyage and also increased the TCE because of the larger flat rate. I'm increasingly positive about the supply balance of the VLCC fleet. As we see the recent spike in rates 2 weeks ago, this was led by tightness in the East rather than the West, which is the usual way it's been happening these past 18, 24 months and then the East follows. I think this bodes very well for when OPEC plus decides to bring back rails to market because these barrels will predominantly supply from the AG. So we can see a lot more volatility driven out of the AG, while we will also see volatility out of the West.

Speaker 2

And this could be this will be very good for higher earnings. We fixed some excellent longer voyages this quarter, locking in some great numbers. Our 2019 build VLCCs will go through their 1st special survey as I mentioned earlier this year. And we will have the benefit of positioning these ships to the dry dock location in China via very profitable front haul voyages as most of our ships are in the way. This is like we've done on Nisos Despoitco and we're going to do on Nisos Rivina soon.

Speaker 2

So far in Q1, we have fixed 81% of our fleet wide spot days at $66,800 per day, 76% of our VLCC spot days at 73,900, which is a 37% outperformance relative to our tanker peers who have reported Q1 earnings, not including International Seaways, so I think we probably outperformed as well. And 88% of our Suezmax spot days at $58,800 per day, a 9% outperformance relative to our tanker peers who have reported Q1 earnings, again not including international sewers. Moving on to Slide 11, OET is in the unique position of being the only pure eco scrubber fitted lit bit tanker platform. This has been an important factor in allowing our company to outperform our peers by an average of 21% 42% on the VLCC and Suezmax segment. Other factors are getting quite lucky on our short term tactical positioning ideas.

Speaker 2

Of course, the fantastic work of Chris and the commercial team and our optimum size, which is neither too small and subject to risk of volatility nor too big that would jeopardize our ability to take advantage of differentiating strategies when we see risk reward balance justified. On the following slide, we touched upon the OPEC plus cuts earlier. I believe OPEC plus main goal is to manage inventory levels to a point that the market begins to reflect this in the oil flat place. Q1 seems to be seasonally drying and an extension of the cuts into Q2, which is what we expect to happen, will put us far below historical inventory levels. This should then lead OPEC plus bringing back barrels sometime in the second half of this year.

Speaker 2

We estimate that the complete reversal of the voluntary and OPEC plus cuts will create an additional 48 VLCC demand equivalent, which is huge. This will have an immediate impact on the tanker market and can set us up for the market that we've all been eagerly anticipating. On Slide 13, we look a bit closer at attention in the Red Sea and have some examples of vessel demand by either avoidance or closure. The Red Sea tension has taken longer to develop on the crude segment than other segments in shipping. Initially, refiners needed to source immediate alternatives to delaying crude deliveries that could affect Iran's and this strengthened the Atlantic based relative crude rate.

Speaker 2

This created opportunities for the LCCs as we previously mentioned with our fixtures on the knock in the split of close. Over time, I believe regional crude grades will have to adjust their pricing in order to sell into their normal outlets and this will reflect the longer voyages and increased freight costs. This could create additional vessel demand equivalent as estimated in the top right chart. Unlike gas, crude grades vary tremendously. Refineries are built to burn specific crudes that produce specific products.

Speaker 2

And at first, they may be forced to refine crudes that are not preferred to keep runs going, but over time, they'll have to revert to crude slates that produce economically efficient products. On Slide 14, we look at another short and medium term bullish factor and this is a normalization of Venezuelan exports. 2 years ago, all Venezuelan exports moved exclusively on extremely over aged shadow fleet vessels. This number has dropped significantly and each normal cargo that is lifted from Venezuela creates new vessel demand for the normal fleet. We anticipate that the main benefactor of continued Venezuelan exports will be the VLCC segment with an expected creation of 8 VLCC demand equivalent this year alone.

Speaker 2

The Venezuelan loading process is also extremely inefficient, which we have not accounted for in these graphs. A vessel may easily wait for her cargo the same period of time as the duration of the voyage, increasing vessel demand and reducing supply. On Slide 15, in the short term, we have all these bullish signals and opportunities, while the long term backdrop is even better. I strongly believe that the amount of available VLCC and Suezmax slots for delivery at new buildings in 2027 is very limited. In Korea, Hanwha and Chindai will be able to allocate limited births for second half of twenty twenty seven, while China and Japan are mostly fully booked until 2028.

Speaker 2

In my career, there has never been a 4 year runway with such limited deliveries. Against this, in 2027, over 54% of the fleet will be over 15 years old in the VLCC segment and 50 6% in the Suezmax. 15 years is the first age hurdle where charters begin to view the vessel as overage. These ships will lose efficiency and not be and 28% of the VLCC and Suezmax fleets will be over the age of 20 in 2027, which is the usual max age for all normal business. With this cheerful slide, we conclude the presentation and happy to answer any questions and handing it back to the operator.

Speaker 2

Again, apologies for the elevator music earlier.

Operator

Thank you. Once again, apologies for the interruptions during the presentation. We will now open the line for questions. The first question comes from the line of Peter O'Gan from ABG. Please go ahead.

Speaker 3

I'm curious to hear because as you alluded to, the IFRS 15 effect is potentially substantial. And if I understand you correctly, you are showing here your TCE equivalents on the load to discharge basis in which you have lost some balance days. So the question, is there a significant difference if you were to show your TCEs on a discharge to discharge basis?

Speaker 2

Hey, Peter, it's Herakles.

Speaker 1

Look, it varies quarter on quarter. And as you have seen, whenever there is a higher effect coming in from the balance days and the IFRS adjustments at the end of 1 quarter, you usually see that effect in the figures of the next quarter. As we anticipated, and I think we alluded to it back in the previous quarter, and you've seen it since our commercial update in January and the results now, there was a bit of an effect in Q4, not as substantial as the previous quarter, which is then translated into Q1. So there is a bit of a balancing between the transition from 1 quarter to the next. I cannot quantify it right now.

Speaker 1

Happy to take the comment and look at it a bit more. And then it really depends, so for example, for this particular quarter in Q1, it really depends on the positioning of the vessels. At the moment, we are we do not expect that the impact may be too large as in some of the previous quarters, but it really will depend on whether some of the next voyages actually get loaded within the quarter. So it's a bit of an unknown at the moment.

Speaker 3

Okay, understood. Thank you. And just then in terms of sort of fleet composition here. So many of us have expected a better sort of at least relative VLCC markets compared to at least the Aframaxes and in particular if you compare it to the product tankers, which has been just stellar. So in terms of, well, the examples you just gave, is it possible to give some sort of quantification of how much we should now expect and then in particular the Red Sea situation to be a relative improvement for the VLCC potentially then at the expense of Suezmaxes and or Aframaxes?

Speaker 3

In what? So in plain English, how many sort of ship to ship operations filling up the VLs from the smaller sizes could we potentially see going forward if the Red Sea situation continues to be as it is?

Speaker 2

Hi, Peter. Thank you for the question. I mean, it's a quite complicated question to quantify, but there's a lot of changing dynamics because of this. And it also depends how long these tensions in the Red Sea last. I think that we probably will continue to see some parceling up of the LCC cargoes, especially from Kazakh standing exports from the Black Sea STS in Malta, because a lot of this is sold in some there are cargoes being sold into China and to Korea, and I think this will continue.

Speaker 2

So that we can see that continuing. CBC is a huge export terminal. So whether it's 2 VLCCs or 3 VLCCs a month, I'm not exactly sure, but I wouldn't expect much more than that from CPC specifically. We could also see similar parceling up from Libya or Algeria to go around Mediterranean ports are not really built and designed for VLCCs. So we may see it occasionally if VLCCs are relatively cheaper to Suezmax in terms of freight and but I don't think it will be as common because once you account for STS and chartering to shift to lighter from the VLCC in Europe.

Speaker 2

I don't know if the efficiency of the VLCC is that great. So I think initially it was quite beneficial for the VLCCs. I think over time as the tensions normalize, it will benefit also the Suezmaxes and Aframaxes as well.

Speaker 3

Okay. Understood. Thank you. And then a final question in terms of well, in the prolongment of this. In terms of adding new ships, so I'm not going to ask you if you will do that.

Speaker 3

But if you were forced to do so now, would you prefer to expand on your Suezmax fleet or your VLCC fleet?

Speaker 2

Look, I think if we were to be able to receive ships today in the water and ready to operate, I think the preference would be towards VLCCs at the moment. I think Suezmaxes have had a very strong 2 years and the VLCCs have lagged behind them. And I really do believe that in the 2, 3 years that it will again will go back to the more traditional historical markets where the leader in terms of earnings and strength will be the VLCC segment.

Speaker 3

And we agree. Okay. Thank you. That was all for me.

Speaker 2

Thank you, Peter. Have a nice afternoon.

Operator

The next question comes from the line of Benedikt Nytingnes from Clarksons Securities.

Speaker 4

Yes, I'll just have a follow-up on the Red Sea situation. We did see a slight drop in activity of crude tankers through the Red Sea after that product tanker caught fire earlier this year. But since then, activity has more or less recovered to 2023 levels. What do you think is sort of needed before operators will start going around the caping in the grid space?

Speaker 2

Hi, Benedicte. Thanks for the question. Well, I think that if we look at what types of crudes are transiting the Suez and as a percentage, you'll see that by far the biggest is the Russian crude. And I don't expect that to stop. I mean, only in extreme circumstances do I think that the Russian crude will divert around.

Speaker 2

And I think in most cases, the policy for this crude is that it must go through the sewers and they don't allow to be rooted via the Cape of Good Hope. So straight off the bat, we have continued Russian going through the Suez. And then you have the threats from the Houthis that have been directed that either Israeli, U. S. Or U.

Speaker 2

K. Interest. And I mean, I think to the greatest extent of what we've seen from attacks have been U. K, U. S, Israeli interest means management, listing, operating.

Speaker 2

It does not include things like insurance or banking. So there's a big Greek fleet, there's a big Chinese fleet who don't have U. S, UK, Israeli interest in terms of ownership and management. And they may feel that it's safe enough for them to transit because there is a premium to go through. And so I think that there's a big chunk of the market that still will go through.

Speaker 2

And until the Houthis decide that perhaps that all coalition forces involved in the Red Sea, which does include German and Greek and Italian naval forces, maybe that would force the Greek fleet to completely divert too. But for the time being, the focus has only been U. K, U. S. And Israel.

Speaker 2

So I don't see much changing at the moment.

Speaker 4

Thank you. That's a great color. And if you share some comments on those 1Q bookings with very much love to receive those as well?

Speaker 2

Can you repeat the question? No,

Speaker 4

it wasn't a question. It was more you said you could send over some comments to Peter on the 1Q fixtures. I think we would like to have those as well as we have lined up the same question.

Speaker 1

Sure, Benedikt. Let's touch base offline whenever you need to. We're happy

Speaker 2

to like it. Thanks. Thank you.

Operator

There are no further questions. So I hand you back to your host to conclude today's conference.

Speaker 1

Thanks everyone for listening in. We'll speak in next quarter. Thank you.

Speaker 2

Bye bye. Thanks, guys. Appreciate it. And no elevator music next quarter or spa music depending on.

Operator

Thank you for joining today's call. You may now disconnect your lines.

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Okeanis Eco Tankers Q4 2023
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