Okeanis Eco Tankers - Q4 2023

Transcript

Operator (participant)

Hello, and welcome to the OET's fourth quarter and fiscal year 2023 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 question raised at the end of the call. I would like to advise you that this session is being recorded. Iraklis will now begin the presentation. Thank you.

Iraklis Sbarounis (CFO)

Hi, everyone. Welcome to the presentation of Okeanis Eco Tankers results for the fourth quarter and fiscal year 2023. 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 the relevant disclaimer on slide two. We're gonna start on slide four and, the executive summary. I'm pleased to present the highlights of the fourth quarter of 2023, finishing off a record year for us. We achieved fleet-wide TCE of over $45,000 per vessel per day, and that includes, for most of the quarter, our last two legacy Suezmax time charters. Spot rates for VLCCs of $45,000 and spot Suezmaxes of $52,000.

We report adjusted EBITDA of $44.2 million, adjusted net profit of $20.4 million, and adjusted EPS of $0.63. Our board declared a seventh consecutive capital distribution of $0.66 per share, which is 100% of our reported EPS, continuing the promise to deliver value to our shareholders. Over the last four quarters, we have distributed $4.36 per share, against earnings of $4.5 on both an adjusted and reported basis, i.e., approximately 97%. On a nominal basis, that's $140 million. Our fourth quarter was of particular importance to us, as in December, we effected 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. What is interesting to observe is that, within two and a half months, approximately 40% of total volume is traded out of New York. 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. Moving on to slide five. I've already went through the highlights of the fourth quarter, so let's spend a bit of time on 2023. We achieved record results in terms of revenue, EBITDA, and net income. TCE revenue for the year stood at almost $300 million.

That's 54% increase from a strong 2022. EBITDA of $242 million, that's 72% increase year-on-year, and net profit of $145 million, also 72% increase from 2022. Our results took advantage of the strong tailwinds coming from the tankers market, our particularly modern and fuel-efficient fleet, 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 six and our balance sheet. As of year-end, we had cash of approximately $55 million. That's complemented by a particularly larger than usual trade receivables balance of $57 million, attributed to timing of payment of freight by our clients. Most trade receivables have since been collected, of course.

Our debt as of then, December, stood at $693 million. Book leverage came in at 61%, while market-adjusted LTV based on broker value stood at approximately 45%-50%. On slide seven, we summarize our corporate and capital structure, as well as our employment profile. On that front, since late December, our entire fleet is trading in the spot market. In the last quarter, we talked about gaining momentum from our two refinancing transactions from the summer and October of last year, as we negotiated the upcoming purchase option, options of the Milos and the Poliegos from the legacy expensive leases. As promised, in February, we closed the transaction of purchasing back the Milos, executing a bank debt facility priced at 175 basis points over SOFR, with maturity in 2030.

We have formally declared the purchase option for the Poliegos, which is due to close in June of this year. 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 a deal where on our two existing leases, on the Nissos Kea and the Nissos Nikouria, we reduced pricing by approximately 60 basis points, extended maturities by seven quarters to 2030 and 2031 respectively, and also increased flexibility for the future by dropping certain penalties in case of earlier financing. We also brought in a third vessel in the portfolio of our Asian-leased vessels, the Nissos Anafi, financing it at 190 basis points over SOFR, with maturity in 2031. The transactions for all four vessels, Milos, Nissos Kea, Nissos Nikouria, and Nissos Anafi, all closed earlier this month. Overall, the transactions executed in the last nine months have improved our cost of debt on average by approximately 1% on nine of our 14 vessels.

We expect the Poliegos milestone to further improve our interest cost, and we are continuously on the lookout for deals to opportunistically optimize our capital structure. I'm now passing over the presentation to Aristidis for the fun part.

Aristidis Alafouzos (CEO)

Thank you, Iraklis. Looking at our commercial performance in Q4. Q4 rebounded with seasonal volatility after a week, in relative terms, Q3. Due to the extended OPEC+ cuts, we didn't get the Q4 that we were all dreaming of. But the silver, the silver lining of this is that the OPEC+ 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 will lead to the explosive market that we're all waiting for, 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 the East.

Nissos Sifnos and Nissos Sikinos 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 dry dock of the first special survey of Kimolos, our 2018-built Japanese Suezmax. We upgraded the paint specification on this vessel, which is currently performing about 7% better than the previous paint. The vessel is actually more efficient today than she was when she was first delivered out to us from the yard. We intend to use a similar specification of paint on our VLCCs that are going through their dry docks this year, the five 2019-built ships, the six during, and one in 2025. During the quarter, we achieved a fleet-wide TC 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 earnings. These numbers reflect our actual booked TC revenue within the quarter as per our accounting standards, which includes several days, especially related to our Suezmaxes, of ballast days for which we've not recorded any revenue. 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 Nissos Anafi, or being sold east instead, and again, being parceled up on VLCCs. Another effect was Med-based cargoes that are sold east and transported via Suez Canal on Suezmaxes, are also being parceled up on VLCCs and sailing around Africa, like we fixed on Nissos Despotiko. We did... Oh, there's some random music playing. We diverted three Suezmaxes that were originally fixed from the AG West via Suez to sail around Africa. One second while we try to turn off the music. Sorry, everyone.

I mean, hopefully, the service who provides us the conference will solve this in a couple of seconds, minutes. Just give us a moment. 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 VLCC around, when you sail around Africa, we've seen more VLCCs being substituted into two Suezmax cargoes. And that we've done one on the Nissos Anafi to go AG West. That should have been two Suezmax cargoes, and we've also fixed one similar on Nissos Despotiko, that originally would have been two Suezmax cargoes from the Black Sea to Korea. It's now on one VLCC cargo that's going to STS in Malta and go around Africa.

We also diverted three Suezmaxes that were originally fixed from the Arabian Gulf west via Suez, and instead, these ships will, they have sailed around Africa. 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've seen the recent spike in rates two weeks ago, and 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+ decides to bring back barrels to the market, because these barrels will predominantly be supplied from the AG.

So we could see a lot more volatility driven out of the AG, while we will also see volatility out of the West. And this could be—this will be very good for higher earnings. We fixed some excellent longer voyages this quarter, and locking in some great numbers. Our 2019-built VLCCs will go through their first special survey, as I mentioned earlier, this year, and we'll 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 Nissos Despotiko, and we're going to do on Nissos Rhenia soon. 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, who I think we've probably outperformed as well. 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 Seaways. Moving on to slide 11. OET is in the unique position of being the only pure eco-scrubber-fitted, listed tanker platform. This has been an important factor in allowing our company to outperform our peers by an average of 21% and 42% on the VLCC and Suezmax segment. Other factors are getting quite lucky on our short-term tactical positioning ideas.

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 or reward balance justified. On the following slide, we touched upon the OPEC+ cuts earlier. I believe OPEC+ main goal is to manage inventory levels to a point that the market begins to reflect this in the oil flat price. Q1 seems to be counterseasonally 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+ bringing back barrels sometime in the second half of this year.

We estimate that the complete reversal of the voluntary and OPEC+ 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 the tension 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 runs, and this strengthened the Atlantic-based relative crude grade. This created opportunities for the VLCCs, as we previously mentioned, with our fixtures on Anafi and Despotiko.

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, 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 the normalization of Venezuelan exports. Two years ago, all Venezuelan exports moved exclusively on extremely overaged 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 eight VLCC demand equivalent this year alone. 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, you know, 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 as new buildings in 2027 is very limited.

In Korea, Hanwha and Hyundai will be able to allocate limited berths for the second half of 2027, while China and Japan are mostly fully booked until 2028. In my career, there has never been a four-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 56% in the Suezmax. 15 years is the age, is the first age hurdle where charters begin to view the vessel as overaged. These ships will lose efficiency and not be able to compete on all cargoes. 25% 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. Again, apologies for the elevator music earlier.

Operator (participant)

Thank you. Once again, apologies for the interruptions during the presentation. We will now open the line for questions. You can register your question by pressing star one on your telephone keypad. If you change your mind and want to withdraw your question, please press star two. Please ensure your lines are unmuted locally as you'll be prompted when to ask your question. The first question comes from the line of Petter Haugen from ABG. Please go ahead.

Petter Haugen (Partner in Equity Research)

Nice. 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 equivalence on the load to discharge basis, in which you have lost some ballast days. So the question is there a significant difference if you were to show your TCEs on a discharge-to-discharge basis?

Iraklis Sbarounis (CFO)

Hey, Petter. It's Iraklis. Look, it varies quarter-on-quarter. And as you have seen, whenever there is a higher effect coming in from the ballast days and the IFRS adjustments at the end of one 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 one quarter to the next. I cannot quantify it right now.

Happy to take a comment and look at it a bit more. 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 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.

Petter Haugen (Partner in Equity Research)

Okay, I understand. 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, 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 and potentially then at the expenseof the Suezmaxes and/or Aframaxes? Well, so in clear, 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?

Aristidis Alafouzos (CEO)

Hi, Petter. 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, you know, these tensions in the Red Sea last. I think that we probably will continue to see some parceling up of VLCC cargoes, especially from Kazakhstani exports from the Black Sea, STS in Malta, because a lot of this is sold and some you know, there are cargoes being sold into China and to Korea, and I think this will continue. So that, we can see that continuing. CPC is a huge export terminal, so You know, whether it's two VLCCs or three 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, you know, from Libya or Algeria to go around Africa. In the inverse, to come AG West, I think we won't see as much because the 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, but I don't think it'll be as common, because once you account for STS and the chartering two ships to lighter from the VLCC in Europe, you know, 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 the Aframaxes as well.

Petter Haugen (Partner in Equity Research)

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

Aristidis Alafouzos (CEO)

Look, I think if we were, 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 that Suezmaxes have had a very strong two years, and the VLCCs have lagged behind them. And, I really do believe that in the next two, three years, that, again, we'll go back to the more traditional historical markets, where the leader in terms of earnings and strength will be the VLCC segment.

Petter Haugen (Partner in Equity Research)

Then we agree. Okay, thank you. That was all for me.

Aristidis Alafouzos (CEO)

Thank you, Petter. Have a nice afternoon.

Operator (participant)

The next question comes from the line of Bendik Nyttingnes from Clarksons Securities. Please go ahead.

Bendik Nyttingnes (VP of Equity and Credit Research in Shipping)

Hi, thank you. Yeah, 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 level. What do you think is sort of needed before operators will start going around the Cape in the crude space?

Aristidis Alafouzos (CEO)

Hi, Bendik. Thanks for the question. Well, I think that you—if we look at what, you know, 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. And I think in most cases, the policy for this crude is that it must go through the Suez, and they don't allow to be routed via the Cape of Good Hope. So, straight off the bat, we have, you know, continued Russian going through the Suez.

Then you have the threats from the Houthis that have been directed that, you know, either Israeli, U.S., or U.K. interest. 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. It does not include things like insurance or banking. So, you know, there's a big Greek fleet, there's a big Chinese fleet who don't have U.S., U.K., 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. So I think that, you know, there's a big chunk of the market that still will go through.

Until the Houthis decide that, you know, 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 Israeli, so I don't see much changing at the moment.

Bendik Nyttingnes (VP of Equity and Credit Research in Shipping)

Thank you. That's great color. And if you share some comments on those long queue bookings, we'd very much like to receive those as well.

Aristidis Alafouzos (CEO)

Can you repeat the question?

Bendik Nyttingnes (VP of Equity and Credit Research in Shipping)

No, no, it wasn't a question. It was more, you said you could send over some comments to Petter on the long queue fixtures. I think we would like to have those as well, as we have the lined up the same, the same question.

Aristidis Alafouzos (CEO)

Sure, Bendik. Let's touch base offline whenever you need me. We're happy to like—

Bendik Nyttingnes (VP of Equity and Credit Research in Shipping)

Perfect.

Aristidis Alafouzos (CEO)

Thanks.

Bendik Nyttingnes (VP of Equity and Credit Research in Shipping)

Thank you.

Operator (participant)

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

Iraklis Sbarounis (CFO)

Thanks, everyone, for listening in. We'll speak in next quarter. Thank you. Bye-bye.

Aristidis Alafouzos (CEO)

Thanks, guys. Appreciate it, and no elevator music next quarter, or spa music, depending on.

Operator (participant)

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