Okeanis Eco Tankers Corp

OSE:OET

Earnings Call Transcript 2022-Q1

[Operator]

Welcome to OET's First Quarter 2022 Financial Results Presentation. We will begin shortly. Ioannis Alafouzos, CEO and Chairman; Aristidis Alafouzos, COO; and Konstantinos Oikonomopoulos, CFO of Okeanis Eco Tankers will take you through the presentation. They will be pleased to address any questions raised at the end of the call. [Operator Instructions] I would like to advise you that this session is being recorded. Konstantinos will begin the presentation now.

[Konstantinos Oikonomopoulos, executive]

Thank you, operator, and welcome all to the presentation of Okeanis Eco Tankers results for the first quarter of 2022. And we will discuss matters that are forward-looking in nature, and these forward-looking statements are based on our current expectations about future events, including the company's commercial performance, dividend policy, projected capital expenditure and anticipated debt capital commitment. Actual results may differ materially from the expectations reflected in these forward-looking statements.

Starting on Slide 5 and our executive summary. We review the highlights of the quarter. OET gaining profitable as another volatile quarter for the market. In particular, we generated net revenue of $26.4 million, adjusted EBITDA of $15.2 million and adjusted profit of $1.9 million or $0.06 per share.

Our fleet-wide TCE for the quarter came in well above market at $24,700 per vessel per day. Our liquidity stands at $40.4 million and 26% higher year-over-year, and our book leverage stands at 63%.

Following the reporting period, we have signed a term sheet for a new debt facility at attractive terms with use of proceed towards refinancing of 2 VLCCs 2019 deal and general corporate purposes. The anticipated cash release from the transaction is made at $29 million. That stands our pro forma cash balance for the company is $70 million.

Lastly, our prudent approach to our interest rate reached 2 years ago that translates to an equivalent of $20 million -- $12 million on mark-to-market based on the current forward curve for interest rate.

We will now move to Slide 6 with the commercial market update, and Aristidis will [ move forward. ]

[Aristidis Alafouzos, executive]

Thank you, Konstantinos. I am very pleased that OET is in such a good financial position in a challenging and ever-changing market. Our eco-scrubber fleet gives us the security to weather any market while still trading predominantly in the spot market. And by trading spot, we maintain the full upside potential. When this market finally moves, and we expect it to be a long-term bull cycle, OET will have the best-in-class positioning for this.

During Q1, we achieved a fleet-wide TCE rate of $24,700 per operating day. Our VLCC generated $18,800 per day in the spot market, a 47% outperformance relative to our tanker peers that have reported Q1 earnings. And our Q1 results were negatively impacted by the IFRS adjustments, which is the reason for the deviation from our previous report Q1 guidance.

Q1 was a quiet quarter as all our fixtures were concluded in Q4. Our Suezmax guidance in Q1 was about positioning and triangulation. We brought ships West to capitalize on the usually stronger West market as well as finding opportunistic front haul voyages in East as we developed Poliegos.

On Slide 8, we provide an overview of our guidance for Q2. So for Q2, we have fixed 47% of our VLCC spot days at $25,400 per day, and 64% of our spot Suezmax days at $36,500 per day. We outperformed our tanker peers by 49% and 55% on VLCCs and Suezmaxes effectively. Our entire VLCC fleet opened early in mid-Q1. And it was in a position to fix voyages early in Q2. The timing was lucky as we mostly took advantage of the brief jump in VLCC rates following the Russian invasion of Ukraine.

Our first ship to open was the Nissos Anafi and we found our way backwards to the China cargo right on our base with limited waiting. The market then began to firm on the back of positive sentiment following the invasion and we fixed 1 vessel on the lucrative AG East [ Iran ], which discharged in Japan that [ freight ] better than going to China. We then fixed our final [indiscernible] trading in the spot market, the Kythnos and Keros, loaded with [indiscernible] in West Africa and discharged into Europe.

Due to the extreme tightness in the Suezmax market out of [ work ] at the time, the fixtures were done at TCEs higher than West Africa China, which is around voyage. Even though the laden leg is half the duration of the ballast, the additional and even greater benefit of opening in the West is that you open in a loading area and can fix the long-haul voyage back East with excellent triangulation.

Going forward, we have 2 VLCCs which will open in Europe in May, early June. In the East, we have 1 VLCC that is sailing now towards Singapore and will enter fixing window next week. While the Nissos Rhenia is considering discharge and will be delivered from a short-term charter. Donoussa will complete in China sometime mid-June.

Our Suezmax fleet had acquired [ in the ] quarter as Folegandros continued a very short TC which will redeliver in late Q2. Kimolos and Milos were able to take advantage of the firm West market of strong fixtures, while the Poliegos fixed lucrative backhaul into Mediterranean as we repositioned her after shipping in China from her previous route.

Regarding our future fixtures, we have Poliegos and Kimolos positioned in the West which continue to have attractive opportunities, even though the market is weakened from this peak, while Milos continues to [indiscernible].

On Slide 9, we try to outline the market environment in the Russian invasion of Ukraine, the short, medium-term uncertainties and the medium-term positive outlook for the sector. Since the Russian invasion of Ukraine, Europe rushes to secure non-Russian replacement cargoes that resulted a spike in spot earnings. By far, the most benefited crude asset class is in the Aframaxes, which also led to significant segments in the Suezmaxes. The least affected was the VLCC. The Suezmaxes and VLCCs saw increased voyages into Europe that are very short haul Aframax voyages from Russia.

Following the significant concentration of vessel supply in Europe on the Suezmaxes and VLCCs, we saw a dislocation of ships, and the rebalance is expected to add downward pressure in the short term.

In the following page, post-fleet rebalancing, we expect the crude fleet to be employed under longer routes following emerging trade patterns that have [ passed ] some miles and will be bolstered from the Chinese reopening. However, we are vigilant about uncertainties for the short and medium term. A number of variables and interconnection among them will shape our market. Positive drivers for the market include the Chinese reopening as well as the relaxation of sanctions on both Iran and Venezuela.

Looking forward, we believe the short to medium-term uncertainty will give way to the constructive fundamentals for the sector, such as the best medium-term supply in record, the demand recovery, the return of mobility and the historic reserve depletion.

On Slide 10, we focus on the supply fundamentals for our markets that looks like one of the most and best medium term ever recorded. As undemanding order book combined with 0 contracting, elevated age, tight yard capacity and soaring newbuilding prices suggest that crude tanker fleet growth will remain manageable over the next 3 to 4 years.

Moving to Slide 11. We assess the nominal demand for our margins. In particular, crude oil inventories [ decision ] continues and absolute global stock standard historical lows. Demand measured in million barrels per day is estimated to be above pre-pandemic levels from Energy Agency, while largely inelastic inflation over the past year. Mobility measured and seaborne product exports is already above 2019 levels.

Crude inventories will not [ drop ] forever and the combination of increased oil demand as well as stock building will be very positive for the tanker demand.

I hand you over to Konstantinos.

[Konstantinos Oikonomopoulos, executive]

On Slide 12, I will provide comparisons between the current secondhand value curve relative to the last 20 years average values and recurrent placement costs for our 2 segments, VLCCs and Suezmaxes. It is evident that the rerating of secondhand values is justified, both from a historical and replacement cost perspective. In particular, for the VLCC segment and between retail and 5-year-old assets, there is a roughly $20 million potential fall from current curve to inflation cost and around $10 million compared to the last 20 years average market.

Similarly, the Suezmax values for a 5-year-old asset rate at a discount of around 22% age-adjusted replacement curve and 10% depreciation.

On the right-hand side of the slide, we estimate the effect on our intrinsic value per share, depending on rerating on secondhand values from current levels. And roughly every $5 million price appreciation per vessel would add NOK 20 to our share product.

We are now moving to Slide 13, Russia invasion in Ukraine and concurrent U.S. and EU sanctions have resulted in new trade routes that would probably enhance tonne mile demand for the crude tanker sector. These trade route location is [ solely ] per tanker and it can increase tonne miles. With the latest sanction announcement, there is no specific energy sanction on Russian oil or crude. There are sanctions on specific Russian oil companies and suppliers. However, the European refiners are proceeding cautiously [indiscernible]. This is evident by the huge discount in the euros brand, the euros conversion brand. The Russian export program is mostly Western based and predominantly on Suezmaxes and Aframax.

As we rebuild the [ buyers ], we try to avoid Russian crude. This will have to be holding [indiscernible] very positive crude market and aftermarket. Europe eventually will have to replace Russian crude with U.S. crudes, North Sea or West Africa and maybe from the Arabian coal. Again, this is also a credit to our [ per mile ].

[Aristidis Alafouzos, executive]

We take -- on the following slide, we take another look at our eco and scrubber economics. You have all seen this in our presentations many times, so I will not focus too much again. This time, we focus only on the eco aspect. On the -- in the rising bunker price environment, it is very important to highlight our eco daily benefit relative to conventional assets. Vessels can be retrofitted with scrubbers, but they cannot be turned into eco vessels. This is another proof of why OET vessels are the preferences for [ tankers. ]

[Konstantinos Oikonomopoulos, executive]

Thank you, Aristidis. We will now move to our financial update, and we will start on Slide 16 where we show a summary of our income statement. Supported and we mentioned earlier, by our higher TCE quarter-on-quarter, we generated $60 million of EBITDA. That is 37% higher compared to the last quarter. Our bottom line benefited both from higher commercial performance and gains on interest rate derivatives, which comprised a $12 million mark-to-market according to the current global rate curve and came in at $9 million. While on an adjusted basis, our bottom line stands at $1.9 million for the quarter. Our fleet-wide OpEx, including management fees, stood at $7,900 per vessel per day.

We will now move to Slide 17, where we provide a summary of finance -- of our financial position. Total cash came in at $40.4 million. Our book leverage is 63%, and we have a book value per share of $11.4.

Moving now to Slide 18, where we will discuss the summary and the main movements of our cash flow statement. We have generated $2.3 million in operating cash flow, and the main movement that relates to the delivery of Nissos Kea during the quarter when we settled the remaining coverage to the yard while also drawn on our debt facility for the vessel. As also discussed before, our total liquidity at the end of the period was $40 million in restricted cash. In the current quarter, we will take delivery of Nissos Nikouria with remaining CapEx of $71 million that are fully funded. We have also signed the term sheet for new facilities to refinance Nissos Kythnos and Nissos Donoussa with an expected cash release from the company of approximately $29 million, which translates to pro forma cash balance of around EUR 70 million for the company.

Turning to Slide 20. Just we will shortly publish our first annual ESG report where we will focus more on our ESG KPIs rather than our commercial performance.

And now handing you off to Ioannis.

[Ioannis Alafouzos, executive]

So the investment thesis is that quality is the best vehicle to capture the next [indiscernible]. We have the most efficiency in a very high bunker price environment. We have a track record of outperforming our competitors. We have shown our commitment to returning value to shareholders and selling ships at top prices. Our fleet is in position with its fast exposure to capture as much as the upside as possible in the short and medium term. While the tanker market basis, 0 current ordering and historically low order book, extremely firm scrap prices with the potential for a very large amount of [indiscernible] [ invest the refinement mainly from Iran ], where crude inventories are extremely low and supply/demand was [ quite increased significantly. ]

Yes, this is -- we conclude with our current [indiscernible]. Thank you all for listening to our webcast, and we will be happy to address any questions you may have.

[Operator]

[Operator Instructions] It looks like there are no questions coming in on the phones at the moment. [Operator Instructions] There are no questions on the phones. I'll turn you back over to your speakers.

[Ioannis Alafouzos, executive]

So thank you very much, and see you again in 3 months. Bye-bye.

[Operator]

Thank you very much for joining the call.