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Edited Transcript of CCOR B.ST earnings conference call or presentation 5-Nov-19 2:00pm GMT

Q3 2019 Concordia Maritime AB Earnings Call

Gothenburg Nov 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Concordia Maritime AB earnings conference call or presentation Tuesday, November 5, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Joakim Ullman

Concordia Maritime AB (publ) - CEO

* Ola Helgesson

Concordia Maritime AB (publ) - CFO

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Conference Call Participants

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* Dennis Anghelopoulos

ABG Sundal Collier Holding ASA, Research Division - Research Analyst

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Presentation

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Operator [1]

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Hello, and welcome to Concordia Maritime Q3 Report 2019. (Operator Instructions) Just to remind you, this conference call is being recorded. Today, I'm pleased to present CEO, Kim Ullman; and CFO, Ola Helgesson. Speakers, please begin.

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Joakim Ullman, Concordia Maritime AB (publ) - CEO [2]

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Thank you, and good afternoon, everybody. And on behalf of the management of Concordia Maritime, we wish you welcome to our third quarter results and presentation. And Ola, the CFO, and myself will share this presentation.

If we turn to Page 3, is describing the quarter in short, the third quarter, and it shows that it's been a challenging market still in third quarter with the result of minus SEK 35.6 million. And the TCEs for Q3 are described in the presentation, and that's around $10,000 a day for the product tankers. And the Suezmax tanker is $21,300 versus Clarkson index of $16,600.

If you go to the blue box on the right-hand side, we can realize that we have had -- we charted out 2 ships, Performance and the Stena Polaris, on consecutive voyage charter for a new South American client for 8 to 10 months. And during the quarter, we also received the $5 million for the IMOIIMAX bonus that we announced at the time when it was agreed upon. Events after the charter or after the period is that we have charted out contract for 3 more P-MAX vessels, the Stena Perros and the Progress and the Premium, to what we would call a very long-term and strategic client of ours that has specific needs that are very suitable for the P-MAX type. And when we have clients like that, we'd like to take the opportunity to charter them out to these clients.

The second bullet in that paragraph says that the upturn in oil markets in all segments that has happened during the third quarter. And if you then go a little bit further to the left on the same page, it shows the fixed numbers for our ships in Q4 so far. You can see the product tankers, 51% at $14,500 a day, roughly. And the Suezmax tankers is fixed at 47% at $38,300 a day. So of course, when the fourth quarter starts, we still have some backlog of fixtures still done in Q3, which is then reflected in those rates. But certainly, there is a very positive trend right now. And since the last bullet point said, upturn in oil tanker segments, let's take a look at that on the next few slides.

So the Page #4 is headlined, what we said in Q1 2019. And we've been saying this for quite some time, and we repeated in the second quarter results as well. And as you see in the red circle that what has been communicated is that we always believe that in second half of 2019, this was the beginning of the next upturn within the tanker transportation area. And this has definitely happened.

Turning the page to #5, we can see as an example on the VLCCs on the Suezmax markets, how terrible they were in the first 3 quarters. And almost on the day, starting Q4, they all shot up quite considerably. And we said it at the time that even though we had expected maybe the market to go up earlier than that, we said second half, and this is second half, of course, but we thought it was going to go up already maybe in the summer -- towards the summer, but it did not. But we always said at the time that the market is not derailed in any ways or the upturn is not derailed, but it delayed. So it got a little delayed, but then it shot up quite considerably. As I said, and the upturn is due to structural changes and reasons, which is more oil in the market, more exports from Middle East Gulf. Few deliveries and so on, so very fundamental things. And then it happened together, coincided, if you will, with the unforeseen activities like the attack on Saudi grounds and Saudi refineries, together with the sanctions on COSCO fleet, Venezuelan traded ships as well. So when things like that happens, it has a tendency of go quite, quite high, which it did. And the graph is trying to show that the blue line is the VLCCs. And that axis should be the left-hand axis, where you could see that it's almost $300,000 a day, at least for a very few fixtures. And the Suezmax market shot up to $150,000 a day.

So anyways, that has come off after that. Things settled down. But we still think that the structural changes in the market and the fundamentals in the market will make sure that the markets will settle down roughly where we are now. And since this was produced, things have gone a little bit more south, but it is on a -- definitely on a higher level, where you see VLCC rates in the $60,000 a day market. And today, maybe the Suezmax market is between $30,000 and $40,000 a day. So things have changed and things have happened.

Let's turn to the page, Page #6. It's just showing the same thing at this time for the MRs, product tankers. And we and everybody else have been saying the -- singing the same song that when the crude tankers shot up, the product tankers will follow suit. And so they did.

Next slide, Slide #7, is also showing the fact that we had always thought that 2019 as a whole will be a better year than 2018. And this graph is hopefully showing that in a clear way. One should remember the OMs should be loyal to the fact that this is actually -- I mean, starting from very low levels. So in 2018 was exceptionally low, and 2019 is better. But again, from a low level. But things have changed and 2019 as a whole will be better than 2018. And from here on, we believe that it will be -- continues to be on a higher -- much higher level, and we'll come back to that later on.

The next slide -- page is Page #8. We just compared the MR results on our MR Tankers, together with -- or against the Clarkson index, and most of the time, we do beat the Clarkson index. This particular quarter, we did not. And however, over the year, we're sure that we will continue to do it. And I'll go back to that in a bit for the reasons why.

The next is just showing the same thing, Slide 9, where we've produced higher results than Clarksons index on the Suezmaxes for the first 3 quarters.

And the next page is showing that the fleet status and the specialized P-MAX tankers, those are the ships that we need or like to find niche trades for. And it's -- I'm happy to realize the fact that we have found 3 good time charters contracts with a big South American charterer. In addition to that, another South American charterer on 2 consecutive -- 2 ships on consecutive voyage charter contracts, so we started to find these niche trades on a regular basis. IMOIIMAXs, the recently built ships that we have 2 of, are delivering good results and doing a good mix of what they were intended to do. And that's a mixed bag of CPP and veg oils and chemicals and had a very high and good laden/ballast ratio. Suezmax is continuing doing fine in the pool. And during the quarter, we've had just 1 ECO MR vessel on joint time charter with Stena Bulk.

Next page is showing the same thing, is the fleets and fleet list, and it is the employment for the various ships, where you can see the time charters on some of it on the P-MAXs and the consecutive voyage charters that you can see on the light blue ones on the Polaris underperformance, ending in roughly around May -- April, May time. We are hoping that we can extend those contracts. And in which case, there will be a negotiation on price during February, March sometime.

Okay. That concludes my first part of the presentation, and Ola will take over and go through the results and the sustainability report. And I will be back a little bit later on -- with our views going forward from here. Ola?

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Ola Helgesson, Concordia Maritime AB (publ) - CFO [3]

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All right, Kim, thank you very much. So let's have a look at Slide #12, Results Q3 2019. So the total income for the quarter was SEK 259.2 million compared to SEK 258.6 in Q3 2018. And then we have a few cost rows as it takes -- the basic difference between Q3 2019 and Q3 2018 is IFRS 16 and also that we had a few more ships chartered in, in Q3 2018. But as a base, the daily running costs for the ships are very much the same. And also, the administration costs are in line with Q3 2018.

All in all, operating results minus SEK 10.6 million compared to minus SEK 66.4 million. And then we have the financial net, minus SEK 25.0 million compared to minus SEK 0.5 million. So all in all, result before tax, minus SEK 35.6 million compared to minus SEK 66.9 million.

Okay. And next slide. You can summarize here that the equity per share, SEK 23.08 per share. And that's interesting when you compare the share price, which is a bit lower.

Okay. Let's have a look at Slide 14. This, I guess, is specification on cash on accounts and accessible cast short investment. And we can see this, it summarize to USD 23.375 million.

Okay. Let's have a look at the sustainability. If we look at Slide #16, we can see that for the quarter, the average number of vetting observation was 1.9. This is 10 vetting inspections during the quarter, where we had 19 observations. So 1.9 in average. And actually, during this quarter we didn't have any incident that we're classifying as a different category. So no incidence at all actually during the quarter, which was very good, of course.

Now when we look at Slide #17, we can see that the work with reducing the bunker consumption is heading in the right direction. So for the quarter, we had 0.3 less consumption today, which is in line what we have for the whole year so far. And of course, since we then consume less bunker, emissions to the areas reduced as well. So those things are in line with the targets.

All right, Kim, it's back to you.

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Joakim Ullman, Concordia Maritime AB (publ) - CEO [4]

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Okay. Thank you very much. Okay. Market outlook. Page 18, what do we think? Well -- well, let's turn to Page 19. Market summary and outlook, we believe this is a cyclical upswing in the market. We have said it for a long time and we still say it, and we have started to see it actually coming into fruition. Several factors supporting a strong ending of '19 and the full year of 2020 to start with. Left to right, we have a robust oil demand. You can say whatever you want about it, but we do. And you can depend on which analyst you favor. It's anything from 1.2 billion to 1.6 million barrels a day in oil growth in demand. It also says that continued increase to U.S. export, which is very, very important -- it's just a few words on a slide like this but, of course, if the Americans are -- have gone from 0 exports to 3 million barrels a day export and maybe up to 5 million or 6 million barrels a day in exports of oil and oil products in the next few years, that has a profound impact on the tanker market as we have seen and we'll see more of.

Inventories, we've been talking about inventories for a long time. And it's not as apparent maybe that the inventories are going down, but they have been going down over the last 5 to 6 months. And we are soon -- and we've been talking about that for some time that we'll soon reach a level, and I think we are at that level already, where we start -- or the oil companies will start to replenish to avoid the inventories to fall below, call it, critical levels, which is then pointing to the direction that we need to ship more oil, simple as that. And I think we are shipping too little oil today, hence the draw from the inventories.

The fleet, we have been through the peak of deliveries, and we are certainly getting much fewer ships going forward. We have a very low order book, which is good, too. And we also are realizing the fact that it has not been as many orders this year as it has in the past. So low order book is completing that box. That's the structural factors. Some of them at least, the big ones. And then you have the wild cards. You have the consequences of IMO 2020 with scrubber installations, with arbitrages and inefficiencies and trade growth and the disruptions, generally speaking. And I think these disruptions will start to surface here within short, and I think it has to some degree already. And we will see a lot more products crossing the oceans as we go forward. Geopolitics is also, of course, a wild card. You can always argue whether it's good or bad. It has a tendency of being exaggerated at the time it happens and then it could go back quickly. But there are uncertainties there. And those are the wild cards. So things are generally and structurally looking good, and we are in for a cyclical upswing here the next few years.

The next page is showing the order book. I just mentioned it. It's the lowest since 2000. The graph you're looking at is for product tankers and anything over 10,000 deadweight. And you can see that it's going down to 6.5%, the order book as a percentage of the fleet. And if these ships are going to be delivered over the next couple of years, 2 to 3 years, we're talking about a net growth per year of 1% to 2%. That is a very short way of describing the market going forward. I don't think we should complicate it any more than this. We've said it for a long time, we're in for this upturn. It has happened. It happened very quickly, coincided with all the things, but our message is that this is cyclical upturn for the next couple of years for the reasons just mentioned.

So the summary is just -- summarizing the result, realizing that the -- that our operation is in good order, and we're up for this -- the beginning of the next upturn has just happened.

From there on, we're happy to take questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Dennis Anghelopoulos from ABG.

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Dennis Anghelopoulos, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [2]

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I have some questions, actually quite a decent amount of questions, regarding the time charter coverage you guys have taken out on the 3 vessels. 3-year TCE levels right now are around, let's say, $16,000 a day. From our calculations, that's around your cash breakeven for the product tanker vessels. Could you give us sort of some color on how much above cash breakeven or if these rates are at cash breakeven? Or you're not going to provide any guidance on them?

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Joakim Ullman, Concordia Maritime AB (publ) - CEO [3]

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Well, as you know -- and thanks for the question. And the rates are confidential, so we can't really comment on them. Your estimation is definitely lower that than the actual rate. That's the guidance I can give. So I'm not sure if that is giving you the full answer, but I think it's the best answer we can give you. And also to give you some flavor to the pictures as such, as I said before, if -- when we find a customer that appreciates the special features of the ship and we can lock in some security for some of the 10 P-MAXs, that's why we opt to do it. And as I said, you're wrong on your assumption for the TCE rates, on the right side, if you see what I mean? The rates are high than you expected, okay?

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Dennis Anghelopoulos, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [4]

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Okay. That makes sense. I'm just using -- we're just using broker quotes. But it makes sense, the ships are better than the average MR. Now just talking, you guys said that you want to take on potentially new coverage given that provides us flexibility because of these new time charters. What sector are you thinking of chartering in? And what would your, like, optimal structure be there?

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Joakim Ullman, Concordia Maritime AB (publ) - CEO [5]

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I think we said it before, and we -- if -- when -- or what we have done so far is to take on additional ships on charter together at Stena Bulk. It's such a good thing to do since Stena Bulk is running, whatever 50, 60 MRs. So if we take on additional ships in that segment, we're in a big, big scope of MRs and give us the full flexibility or the full possibility to maximize on the earnings, together with all the other product tankers that they are running. And that goes for the Suezmaxes too. It's a pool of 20, 25 ships in the pool. And instead of taking one-offs here and there, that is not our core fleet standard, so to speak. It would not be adviceful, we think. So to answer your question, we will go for ECO MRs or Suezmaxes.

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Dennis Anghelopoulos, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [6]

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Okay. The ECO MRs or Suezmaxes. And do you have -- okay, that's good enough. And then you guys said that you're going to have some negative one-off items in Q4 due to the closing of the 2 office and termination of some employment. Can you give us some kind of guidance as to how much that's going to be?

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Ola Helgesson, Concordia Maritime AB (publ) - CFO [7]

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Okay. Ola Helgesson here. Yes, we can't say exact numbers, but those are low because we are actually closing 2 small offices, 1 in Bermuda and 1 in Switzerland. And actually, only 3 people working in these 2 offices. So we're talking low numbers here, but still we just -- what we can. I just mentioned it in the report anyway. So it's low numbers.

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Dennis Anghelopoulos, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [8]

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Okay. All right. And just to try to wrap up here. The Primorsk was off hire for 69 days, that's above average. Is there any reasoning for that? Is it some kind of special dry dock? Did you have any damage? Or was it just delays due to everyone's scrubber retrofitting?

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Ola Helgesson, Concordia Maritime AB (publ) - CFO [9]

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No. We actually had some bad luck, you can say, because the Primorsk was in one place at first, in Rotterdam actually, but we needed to move that ship to Lisbon in Portugal. And we had some bad luck having to move the ship, and we didn't have enough workers, et cetera. So I would say it was kind of a -- like a one-off bad luck thing that just took too many days.

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Joakim Ullman, Concordia Maritime AB (publ) - CEO [10]

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And just to fill in, you are correct that if you need to dry dock in any European yard in the middle of the summer in these days with scrubber installations and shipyards being pretty occupied with that, it wasn't easy to find a place. It wasn't easy to find the right place. And so, yes, things compounded and it was certainly a one-off docking.

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Operator [11]

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(Operator Instructions) And as there are no further questions, I will hand the word back to the speakers.

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Joakim Ullman, Concordia Maritime AB (publ) - CEO [12]

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Okay. If there are no further questions then we conclude the presentation and thank everybody for participating. Thank you very much. Good afternoon.