Okeanis Eco Tankers Corp

OSE:OET

Earnings Call Transcript 2024-Q3

[Operator]

Welcome to OET's Third Quarter 2024 Financial Results Presentation. We will begin shortly. Aristidis Alafouzos, CEO; and Iraklis Sbarounis, 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. I would like to advise you that this session is being recorded. Iraklis will begin the presentation now.

[Iraklis Sbarounis, executive]

Thank you. Hi, everyone. Welcome to the presentation of Okeanis Eco Tankers results for the third quarter of 2024. We will discuss matters that are forward-looking in nature, and actual results may differ from the expectations reflected in such forward-looking statements. Please read through the relevant disclaimer on Slide 2. So starting on Slide 4 and the executive summary. I'm pleased to present the highlights of the third quarter 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 VLCCs were at $43,000 and our Suezmaxes at $45,000. We report adjusted EBITDA of $37.9 million, adjusted net profit of $14.5 million and adjusted EPS of $0.45. Continue 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 a full payout of our EPS for the quarter. On a 4 quarter rolling basis, we have distributed $3.31 per share or 94% of our adjusted net income. During the quarter, we have successfully completed our 5-year dry dock for the Nissos Kynthos, the Nissos Rhenia and the Nissos Anaf. With 5 of our 6 planned dry docks this year behind us, we look forward to completing the Nissos Donoussa later this month. On Slide 5, we show the detail of our income statement for the quarter and the first 9 months of the year. TCE revenue for the 9-month period stood at over $212 million. EBITDA was approximately $167 million and net income was over $95 million or $2.97 per share. Moving on to Slide 6 and our balance sheet. We ended the quarter with $56 million of cash. We also had a working capital increase. We've got trade receivables standing at $44 million, and our balance sheet debt stood at $658 million. On Slide 7, we illustrate our most important competitive advantage, our fleet. This is the main driver behind our operational and commercial success. Our 14 vessels, all built at first-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 mixers. Slide 8. Moving on to our capital structure. Post the recent refinancing exercise, we have successfully set a 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 sale and leasebacks and the financiers are balanced with both traditional European shipping banks as well as Asian banks and leasing houses. 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 walked in detail through the refis back in August. Since we do not have the need for more capital, we were able to source funding with relatively low LTVs, and we focused on adding flexibility, improve pricing. We have estimated that we're saving $7.5 million in our first year and extended maturities. And our current maturity tower is well balanced. Other than the 2 legacy leases on the Rhenia and Despotiko, whose purchase options kick in the first half of 2026, all other maturities are staggered between 2028 and 2031. We have plenty of time to focus on the Rhenia and Despotiko, 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 Aristidis for the commercial market update.

[Aristidis Alafouzos, executive]

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 strength in late July on the VLCC. The market was hampered by weak refining margins, poor Chinese demand and refinery turnaround. We completed 3 dry docks as planned and repositioned 4 ships to the West. On 3 of these ships, we took advantage of the strength in the clean market to clean them up in diesel from the ran Gulf to Europe. On one of our Western vessels, we found a favorable cargo to fix that earned a big premium paying West. 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 or West Africa. And on 2 of our ships, we found attractive front haul voyages from the West to the East that outperformed the local voyages by a big margin, and we took those. Given that we have a Western focus on how we trade our fleet, we immediately come backhaul on these ships and brought them back into the 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 day. 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 who have reported Q3 earnings. And these numbers reflect our actual book TCE revenue within the quarter as per accounting standards. We flip over to Slide 12 for a dry dock update. As we mentioned in previous quarters, we planned our dry docks in order for the ships to be available for unxedepected and wonderful Q4. We executed our plan almost perfectly, but the market isn't yet doing its part. We completed dry dock on 5 of our 6 VLCCs, which have their required special survey this year. Nissos Donoussa is the final VLCC to go into dry dock 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 million per vessel, all-inclusive. $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. We are currently projecting a 10% consumption benefit over a 5-year period with an annual saving for this year only of $1 million. 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. Many factors such as poor arbs, keeping Atlantic cargoes in the West, low exports in the U.S. due to hurricanes, weak Chinese demand, terrible refining margins have met together to keep pressure on the freight market. Even winter temperatures and weather delays have not kicked in yet. Right now, in Athens is 20 degrees and sunny. I do believe we will see winter volatility at some point this winter, and this will allow us to lock in good pictures. 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. The rate we achieved on this voyage outperformed 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. Our focus is on maintaining positions to fix an attractive front-haul business when rates. But we're not fixated on this, and we take opportunities to fix long-haul business when we find good opportunities and it materially outperformed the local voyage. So far in Q4, we have fixed 66% of our fleet-wide days at $43,800 per day, and that breaks down to 63% of our VLCC spot days at $46,900 per day, a 26% outperformance and 70% of our Suezmax days at $40,200 per day, 23% outperformance. And both of these figures are relative to our tanker peers who have reported their Q4 figures. Continuing on to the next slide. As we do every quarter, we emphasize our consistent outperformance relative to our peers. 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. 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 VLCC and Suezmax segment, we see an encouraging outlook supported by a controlled order book and an aging fleet competition. 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 Suezmax and VLCC fleet are over 20 years old, making them candidates for recycling in the year. 2028, we anticipate the number of over 20-year-old ships in the Suez and VLC segment to be 30% or higher. That's a big figure. In addition to above, in both asset classes, approximately 25% of non-ECO vessels are expected to face challenges in meeting regulatory requirements for the EEXI and CII compliance. These vessels may be forced to slow steaming in order to comply with these regulations. When we compare this aging 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 undersupplied. The supply picture becomes favorable when we consider yard capacity. As shown on Slide 16, we're entering a new era for vessel supply with 2 major challenges, an aging fleet and a significant reduction in yard capacity. Since 2010, global yard capacity has nearly halved, representing a 58% reduction. This decline in yard capacity is significant. It limits replacement potential and increases competition for newbuild slots, especially as yards prioritize higher-margin projects like LNG carriers. As mentioned on the previous slide, we have substantial replacement need in the tanker market. By 2030, the number of tankers over 20 years old will double the current order book. This creates potential supply as vessels leave the market faster than new ones are built. Even if the order book accelerates, the current well into the '28 for meaningful orders, it's hard to envision an oversupplied market. In summary, the combination of shrinking yard capacity and an aging fleet creates more competitive supply environment. With limited newbuild capacity, we anticipate that the fleet renewal will struggle to keep pace with retirement in both segments. 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 regions to meet global consumption. Additionally, demand acts as a driver of volatility, and we believe that even minor positive signs could have a substantial impact on rates. At Okeanis, we appreciate volatility and 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 look very favorable for the year. Handing back to you, operator.

[Operator]

[Operator Instructions] First question comes from Liam Burke with B. Riley.

[Liam Burke, analyst]

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 quota is progressing? Or are we still seeing weakness as we finish the year?

[Aristidis Alafouzos, executive]

You can always look at the indexes that are printed to roughly guide where the market is. But given that we like to triangular our vessels, well, we can consistently outperform these indexes. I would say that in the last week, we've seen rates bottom out from the AG and from the West on the VLCCs. Today, the sentiment is a bit stronger. And we've seen rates push up a couple of points from the AG on the C3 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.

[Iraklis Sbarounis, executive]

Liam, do you have any other follow-up?

[Liam Burke, analyst]

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

[Iraklis Sbarounis, executive]

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 subsegment of the business. So our scope is very, very narrow in terms of the tonnage that we would look at, modern, scrubber-fitted, Eco. 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. But if we were able to source an opportunity that does fit within the scope and we could structure it the right way, i.e., accretive 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.

[Operator]

[Operator Instructions] This concludes our Q&A. I'll now hand back to Iraklis Sbarounis for any final remarks.

[Iraklis Sbarounis, executive]

Perfect. Thanks, everyone, for listening in. I guess we'll speak again in February. Thank you very much.

[Operator]

Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.