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Edited Transcript of CCOR B.ST earnings conference call or presentation 29-Apr-20 1:00pm GMT

Q1 2020 Concordia Maritime AB Earnings Call

Gothenburg May 11, 2020 (Thomson StreetEvents) -- Edited Transcript of Concordia Maritime AB earnings conference call or presentation Wednesday, April 29, 2020 at 1:00:00pm 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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Joakim Ullman, Concordia Maritime AB (publ) - CEO [1]

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Good afternoon. This is Kim Ullman speaking. Welcome to the Q1 reporting of Concordia Maritime. Ola and I, our CFO, will go through the -- and share with you the results and the highlights of this quarter, together with some outlook as well.

Okay. We'll look at the first picture, you might wonder why would I've a tanker picture on that slide, but it is just to illustrate the fact that we're exceptionally dependent on the oil and the oil industry, as such. And therefore, we're showing some oil barrels there instead.

Okay. Let's go to Slide #3, please, where we show the first quarter in short. Happy to report the fact that we're making a profit of SEK 29 million in the first quarter. And the highlights bullets, it's on the right-hand side is showing that we've seen throughout the quarter, quite low oil prices and high production of oil and that has, of course, brought positive effects in the short-term to the tanker market. We'll go through that more in detail in a short bit.

COVID-19, the new coronavirus is, of course, affecting all of us and the long-term impacts are exceptionally difficult process. During the quarter, we picked out Stena Paris for 6 months. Those were the highlight and bullets for Q1. If you go down to the left-hand side, you see the earnings in U.S. dollars per day, and the first quarter shows $19,700. And for the Suezmax, it's $49,000 per day in the first quarter.

Fixed, so far, in Q2, 2020 as of April 23, it should say. And you can see the product tankers 39% fixed at $19,900 a day. And the Suezmax's tankers, 68%, fixed at $55,000 per day.

Let's go to the next page, and in order to describe the first quarter of 2020, I would like to start, actually, 1 quarter earlier. It all looked so positive, as we'd say, on Slide 4. The fourth quarter had a stable growth in the world economy, the threat of trade wars were almost behind us. Stable increase in oil and demand, whether it was 1.2 million barrels a day, 1.3 million, really didn't matter, It was stable, the oil prices were relatively stable, between $60 and $70 per barrel. And with this, this structural improvement in the market, slow, slow deliveries of new building deliveries as well. It had slowed down at that time. It all resulted in a rising freight market for the tankers in Q4. And surely, it was helped partially also by the fact that people were installing scrubbers, and there was a ban on cost of tankers. But generally speaking, structurally speaking, things look pretty good.

And Q1, if you go to the next slide, let's bring it down or -- bring it down into months rather than the entire quarter. January, we're still surfing on a Q4 2019 wave, if you will. We started to hear about something called coronavirus and with that, came a bit of a concern about the world economy and with the concern about the world economy, it also comes a concern about the demand for oil. So the blue line is showing the VLCC rates, coming off the last Q4, close to $100,000 a day and going down during January throughout these concerns that we just talked about.

In this process, the oil price adjusted from $68 per barrel to roughly $54 per barrel, but that's how it was. And no -- not further down than that, based on corona worries at that time, tanker rates went down to -- all the way down to $20,000 -- $20,000 a day for VLCC, which was pretty dramatic fall, as a matter of fact.

Turn to the next page, please, #6. We have March. We have continued spread of the coronavirus. We started to get revisions right, left and center on GDP forecasts, and now all going down. And OPEC is trying to come up with a new production cut of 1.5 million barrels a day and it all crashes and the Saudis decides to let the prices go down and offer discounts, big discounts and also threatening by increasing their production. What happens to the oil, oil price? Well, the oil price goes from $60 to $30 and then to $20. And with that, cheap oil and oil in contango, you could see what happened to the blue line, which is the VLCC rates, they shot up again up to the $250,000, $300,000 a day mark. Came off a little bit. It's exceptionally high rates and all of that it buzzes up and down in that region between $150,000 to $200,000 a day. And we're still there.

As you can see from the next picture, which is April 2020, picture #7. The continued spread of coronavirus and all of a sudden now, OpEx say, okay, let's agree on the production cut and not 1.1 -- not 1.5 million barrels per day but 10 million barrels per day compared to October 2018. If you were to compare it with April figures, it would have been 11 to 12 million barrels a day, but that should only come in effect in May.

So we have a continued strong tanker market. Floating storage is coming along and keeping all these rates high up there. Even though the demand is down, oil is flooding and people need to put oil on tankers. So the rates in the blue line are, as I said before, between $150,000 and $300,000 a day. And the other segments are following as they always do, as a matter of fact. When oil prices crashes, continue to go low and hit the $15 mark at one stage, as a matter of fact.

Next slide goes to show our earnings compared to the Clarkson index. And we have this slide every time. It repeats itself. We are beating that index. We are following our peers and Clean and making good results in comparison to them as well. It is hard, though, to beat an index every quarter and especially, if it shoots up exceptionally high and quick and goes down almost as quick. Very few people are lucky to get those top rates.

Same goes for Suezmax, it's even more apparent in the crude tanker market because it shoots up exceptionally high and could go real down quickly, too. But anyways, we're up there, and over the year I'm still pretty certain with lagging effects coming back, that we will continue to beat the overall market.

Page #10 is describing the current fleet status on the P-MAX side are 65,000 tonne product tankers, 4 on the spot market, 2 are on consecutive voyage charters contracts that soon will end with 1 short-term TC and 3 longer-term TCs.

The IMOIIMAXs are in the spot market. The Suezmax ship is in spot market in the pool together with Stena and Sonangol Suezmad Pool.

Page 11 shows the fleet in a different way, just the ships and to what extent they are being employed as of now, and we've been through it before. But to generalize, you say -- you can see that 7 out of 13 ships are on the spot smart market. As we speak, which is 53%. Soon, 3 -- additional 3 ships will come back to the spot market, which will make it 10 out of 13, which is 75%.

With that, I leave this part of the presentation for now. I hand over to Ola, and I will return with the later -- with the outlook for the remainder of the year. Ola, please?

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Ola Helgesson, Concordia Maritime AB (publ) - CFO [2]

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Thank you, Kim. So let's have a look at Slide #12, the result Q1. So the income for the quarter was SEK 348.6 million. And we had total operating costs of SEK 290.6 million. We had a financial net of minus SEK 29 million. We had a result after tax of SEK 29.0 million.

Let's go to the next slide, #13. And here, we can see the equity ratio, which is down now at 29%. And of course, the changes last year, 2019, with the IFRS rules, pushed down the equity ratio quite a bit for us, since we have operating leases.

Okay, and then available liquid funds at the end of the quarter was SEK 398.9 million. And equity per share was SEK 22.99, which is interesting when you compare it to the share price.

Okay. Let's go to sustainability. Sustainability continues to be focused for all of us in Concordia Maritime, and we have some KPIs that we follow up on. And for this quarter, unfortunately, we had an LTI. We also had an LTI for 2019, 1. And 5 years before that, we had no LTI at all. So this is 2 LTI now in the period of 2 years. If you make this to LTIF, lost time incident frequency, it's 1.48. We have no inspection with more than 5 observations. We had 2.1 in average number of vetting observations, which is better than the target. We had no port state control, resulting in detention. We actually have had 1 piracy-related incident. We had 1 damage to property, 1 restricted work case as well. But we had no medical treatment case and no high-risk observation and no high potential near miss. So a mixed bag of things for this quarter.

When it comes to the environmental responsibility KPIs, we did not manage to decrease the fuel consumption this quarter, it was actually a small increase instead. We work with this every day to decrease. But of course, it's hard to do this over and over again, and always beat your next best level, so to speak. And this time you couldn't do it, this quarter.

The main reason here really was that we have done quite a few voyages in laden, which actually affects this KPI a bit negative. But overall, more consumption, which resulted in increased CO2, with 101 tonne. We had actually reduced Sox, but that's due to the new bunker quality at the carrier due to the IMO 2020 rules. We had increased NOx 2 tonnes, and we had increased particulates 0.26 tonnes for the quarter.

Okay. That was sort of about the finance and the sustainability. So over to you, again, Kim.

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

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Okay. Thank you very much. I hope you can still hear me. And then on Slide #17. Talking a little bit about the market outlook, even though it's exceptionally difficult to do that in these days for the obvious reasons. If you look at Page 18, where they're trying to illustrate how the significantly reduced oil consumption has come down. We are talking about 20% to 30% down. We're talking about 20 to 30 million barrels per day. So it's a huge reduction in oil consumption, obviously. And that's the blue line, obviously. And if you follow the blue line from April onwards, it's a dotted line, and it is -- expectations of DNB and IEA with lockdown, being unwind and industry coming back on stream and so on and so forth. But it's an expectation that, of course, this reduced oil consumption will start to come up again. To what extent and how high it really is a very difficult question, but somebody has at least stuck up at the neck and try to project it. And it's not going -- coming back all the way to maybe 100 million barrels a day towards the end of the year, but it's going in that direction, at least.

The red line is showing the production at the same time. And if you have a production at the same time, then it's staying where it's been all the time or for a long time, there is a big gap, of course, between production and consumption. That production is meant to come down in May by 10 million barrels, which is 10% and then a little bit less going forward throughout the year.

So in the next picture, #19. It's obvious that the period where the blue line is underneath the red, that's a stock build period. That's where we're at right now. Not much oil is being stocked up and inventories are filling up and ships are being used as floating storage as well. So this is, of course, the very reason or one of the main reasons, I should say, or maybe the very reason that the tanker market is as hot as it is because, I mean, corona is not a good thing for us. It's a bad thing. But in the meantime, when people are overproducing and flooding the market with oil turn up and then it's good tanker days.

With that production line coming down, as per the OPEC agreement, and potentially, this consumption going back up again, there will, sometime during the summer, fall, sometime, be a time when the consumption will surpass the production and we will start to get a draw from inventories. And that draw from inventories are normally not good for tanker business because the consumers can pick up their oil from shorter distances or from land storage, basically. So then they do not need the thing, the tank transformation, as they otherwise would have. So that would be a negative for tankers.

Page 20 is saying the same thing, simply put stock building, demand for tanker goes up as rates go up. The opposite decrease draws from -- in the consuming areas. This time, however, I mean, it's quite likely that, that downturn may be dampened due to the floating storage and the logistic challenges imports. We've seen lots of that right now, and ships are being taken for 6 months, and potentially longer as well for floating storage. And that is keeping, certainly, a number of ships out of the spot market this autumn to come.

So even though we have the natural stock draw where you see a lower transportation need, it might be dampened by this floating storage, as a matter of fact. So that's that. And one thing that is for sure, so to speak, I mean, order book is low. New orders are basically not coming in at all. So the fleet is shrinking in all of this, which is good, of course, and it's also a countermeasure towards this period when you draw from stocks.

So we're coming in the right direction there. And nobody can really destroy 2021 by ordering ships right now. So that's a clear statement.

So 22, the summary of what we've just been through, short and sweet, the results for the first quarter was a profit of SEK 29 million. All our KPIs, all our operations are in very good order, and that's all perfectly fine. You've seen the spot exposure being somewhere between 50% and 75%. And the outlook, well, Q2, certainly, a strong market due to the stock building and storage. And Q3, we will have stock draw and effects from related production cuts. Of course, we foresee a weaker Q3. That could last into Q4 as well. But again, we have a number of ships in storage. We had a lot of countries around the world that are quite keen on getting their countries up and running again and get the economy going, and with a lot of incentives to have that happen.

So there is some opportunity for recovery some time in Q4, too.

Everything is said with a great uncertainty, of course, because we have something new that we've never experienced before called the coronavirus. And of course, that puts a big question mark (inaudible)

I think I stopped there. We stop there, and we hand over back to the operator for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes 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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My first question circles around the Stena Finance facility, which falls due in the end of this year. Are you guys going to -- is that going to be rolled over? Or is that just -- are you guys planning on paying that within 2020?

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

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Thanks for the question, Dennis. This is Ola here. Now our basic plan is actually to roll it over. And so we're probably going to do that. It's a good facility. And yes, we just plan to keep it.

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

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And then you also have, I think, maturity in 2021 for, I think, maybe approximately $20 million. Are you guys in negotiations to refinance that? And should we expect something in the near future?

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Ola Helgesson, Concordia Maritime AB (publ) - CFO [5]

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That's actually for 2 of the P-MAXs. So what we're planning on to do is to refinance these 2 during this year, actually during the second half of this year. So we have at least 1 year ahead of maturity for that facility.

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

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And is it going to be with bank financing? Or are you going to take a higher leverage option with the lease potentially?

What are your thoughts on that?

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

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Actually, we like the bank that we do work with now. And so far, we have had competitive terms from those. So that would be the basic plan for us. You never say anything for certain because things change a lot in these days, but that would be the basic plan only.

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

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And just a question for Kim. You've alluded to the stock, anticipated stock build and the great uncertainty currently in the market. Do you have any thoughts on TC coverage? And if yes, would it be of meaningful duration?

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Joakim Ullman, Concordia Maritime AB (publ) - CEO [9]

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Well, we're certainly open for TC coverage. I mean, it's -- if we have this view that things will look worse or not so good in the second half of this year? Yes, we should take the opportunities to fix at these high levels that are currently out there. They are not many, but they are actually every now and then popping up (inaudible) and we will still continue to do that with a clear understanding that, that TC rate would in such a case to pass the (inaudible) first.

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Operator [10]

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(Operator Instructions) No further question -- yes, we do have another question from Andreas (inaudible) from Kepler Cheuvreux.

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Unidentified Analyst, [11]

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A quick question. Have you had any inquiries about floating storage for products?

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

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Yes, this is Kim. Yes, we have. We have had -- we have had questions, which we don't just stick to.

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Unidentified Analyst, [13]

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So we do store significantly right now?

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Joakim Ullman, Concordia Maritime AB (publ) - CEO [14]

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Yes.

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Operator [15]

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If there are no further questions, I will turn the conference to you for any closing remarks.

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Joakim Ullman, Concordia Maritime AB (publ) - CEO [16]

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Okay. Thank you very much, everybody, for participating, and looking forward to talking to you again in August, I think it is. Thank you very much.