Aegean Marine Petroleum Network Inc. held an earnings call on 17th November, which followed the announcement of the company's third-quarter results on the same day. Please find below some of the key comments made by president Nick Tavlarios, chief financial officer Spyros Gianniotis and chairman Peter Georgiopoulos, with questions by Doug Mavrinac at Jefferies and Ben Nolan at Stifel.
Bunker and crude price trends
Nick Tavlarios: "Oil and refined product price volatility continued through the third quarter with Brent crude trading between $41 per barrel and $52 per barrel. This volatility was largely driven by OPEC talks to have agreements to reduce or cap production.
"Bunker fuel prices move with crude during the quarter ending at approximately the same price levels as the end of the second quarter. Crude oil markets continue being in a contango structure of roughly $0.50 per barrel per month, indicating a continued oversupply in crude markets is keeping prompt prices depressed. The structure of the fuel oil market, the primary component of bunker fuel, has flattened out with a contango of only $0.05 to $0.10 per barrel per month. This seems to indicate that the current oversupply in fuel oil is minimal as compared to crude. While fuel oil price evolved during the third quarter, the net change quarter-on-quarter was a negligible 2% increase. Overall, prices remain low for our customers based on historical values."
Shipping Sector
Nick Tavlarios: "We've seen continued volatility and consolidation as company's work to manage a challenging marketplace. The container sector in particular continues to experience a low rate environment driven by lacklustre global trade and vessel oversupply and have seen a merger into parts for many key players. The recent bankruptcy filing of Hanjin has seriously impacted the industry and the merger in the container segment with NYK, Mitsui, and K Line, who has lost a total some $1.5 billion since 2012, follows the combination of other large players including Cosco with CSCL, CMA CGM with APL, and Hapag-Lloyd with UASC. These consolidations should generate scale and savings that should help these company's compete in a challenging marketplace."
0.5% global sulphur cap in 2020
Nick Tavlarios: "The reduction of the global sulfur cap from 3.5% to 0.5% in 2020 will have winners and losers. We anticipate the cap will benefit eco-friendly vessels and their owners that use less fuel per mile versus older tonnage. It will benefit well-capitalized marine fuel suppliers capable of segregating qualities and sourcing and blending component cargoes to meet the strict requirements.
"Scrubber manufacturers and vessels that can install and run abatement technology, and diesel refiners will have demand for diesel as marine fuel-blended stock will dramatically increase. We also expect the cap to be challenging for high-sulphur residual fuel refiners who lack capital to upgrade, older tonnage and vessels that cannot retrofit with abatement technology and small suppliers who lack the liquidity to finance more expensive inventory.
"While this cap does not go into effect until 2020, Aegean supports the implementation of the new regulation which will have a positive impact on our business. Our amount of tonnage, flexible infrastructure and team of global specialists ensure that Aegean will continue to successfully navigate in the ever-changing marketplace."
Sales over the last 12 months
Nick Tavlarios: "Over the last 12 months has sold 16.6 million metric tonnes of fuel and generated $135.5 million in adjusted EBITDA."
Balance sheet
Spyros Gianniotis: "Cash and cash equivalents were $58 million as of September 30, 2016, compared with $115.4 million in the prior year period, as we utilized cash to fund the share buyback."
Sale of non-core assets
Spyros Gianniotis: "The vessel sales mentioned earlier allowed us to make progress on our priority to strengthen our balance sheet by paying down vessel debt and eliminate approximately $9.5 million in operating costs on an annual basis."
Reason for jump in sales
Nick Tavlarios: "We talked about the introduction of our South African market and Brazil. So those are certainly contributing to the growth and the volume. And the rest of the core business certainly had growth. But I would say the other component that has had the biggest growth is our retail sales component, which you refer to as a back-to-back business; yes, that's the other piece."
Doug Mavrinac: "So how do you see that particular aspect of your business evolving over the next two to four quarters?"
Peter Georgiopoulos: "It's an asset-like business, as we pick up new teams and people, we can build that business out. So it's like a brokerage business."
Increasing storage and blending capacity
Ben Nolan: "Are you guys considering adding maybe to your storage capacity or to your blending capacity? I mean, is that an area that you feel like, in order to really capitalize on the opportunities, you need to be investing in?"
Nick Tavlarios: "Yes absolutely."
