U.S. Markets closed

Edited Transcript of CCOR B.ST earnings conference call or presentation 30-Jan-20 2:00pm GMT

Full Year 2019 Concordia Maritime AB Earnings Call

Gothenburg Feb 5, 2020 (Thomson StreetEvents) -- Edited Transcript of Concordia Maritime AB earnings conference call or presentation Thursday, January 30, 2020 at 2:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Joakim Ullman

Concordia Maritime AB (publ) - CEO

* Ola Helgesson

Concordia Maritime AB (publ) - CFO

================================================================================

Conference Call Participants

================================================================================

* Dennis Anghelopoulos

ABG Sundal Collier Holding ASA, Research Division - Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Hello, and welcome to the Concordia Maritime AB Q4 Report 2019. (Operator Instructions) Just to remind you, this conference call is being recorded. Today, I'm pleased to present CEO, Kim Ullman. Please go ahead with the meeting.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thank you very much. Thanks for the introduction, and welcome, everybody, to the telephone conference of Concordia for Q4 2019. I'm not alone. I have, as usual, Ola Helgesson, the CFO with me as well. So we will go through the presentation together. And we have a number of slides that we like you to turn each time we ask you to do so.

So if everybody can turn to Page #3. Assuming everybody is on that page, we realized that we -- Q4 was good and it was a starting point for an upturn in the market. We'll get back to that. However, there is always a bit of a lagging effect on our results before we get into that harder market, so to speak. So you can see on the Q4 results, there is a negative of SEK 29.5 million, which is the result for the quarter. And that gives a yearly result of SEK 102.6 million negative.

The Q4 earnings for the product tankers and the Suezmaxes are registered as $14,800 per day, respectively with $44,000 per day, I should say, on the Suezmaxes. This is then considerably lower than what you would see being noted on the indices and market indices with, for instance, Clarksons, but we'll come back to that, and that has the -- it is the lagging impact that comes into effect here too. More importantly, I would say, the guiding for the Q1 fixing so far is, as you can see, product tankers, 56% at $20,300 per day and Suezmax tankers, 42% at $55,600.

So things have now started to change, and we are also falling in line on the results side with that. Highlights on the right-hand side, we've delivered the 3 P-MAXs chartered out for 2 years. During the quarter, we have done refinancing of 8 P-MAX vessels in short-term facility, and overall, we'll come back with the details on that.

Following our dividend policy, the Board is proposing to the AGM that we adopt the dividend of SEK 0 (0) no dividend since it was a loss-making year, which is in following the dividend policy. Events after the period, we have now implemented the new corporate structure with operational headquarters in Copenhagen.

Turn page to #4, please. And that is just a reminder to everybody, what we said in Q1 2019 that we did expect the second half of 2019 to turn and that we should see a positive market trend, and that should be the starting point of the next upturn in tanks transportation. And so it seems to have happened. If you look at the next page, which you now can see might not be numbered, but it's a crude tanker spot market, which is in Clarkson figures and picture, where you can see that the crude tanker market really shows up big time in the second half in September -- October actually, started already in September and shot up very, very high for a short period of time, and then that was that the market in general shot up and that -- certainly, there were some one-off effects with disruptions in the Middle East that, so to speak, helped that index to spike the way it did. And this is also partly the reason why it will be difficult for, I would think so, most of the tank companies to match an index when you have such a few fixtures at the peak of that spike.

Following that, you can see throughout the fourth quarter, the market was, generally speaking, on a much higher level than we've seen in 2019 and certainly 2018. And of course, as any tanker market, even though it's down now, it will be volatile, of course, but it's on a much higher level. That's certainly our expectations. The volatility we will maybe get away from because we certainly think that could influence the market short-term over time.

So that was the crude tanker spot market. If you turn to the next page, which is the same picture, just featuring the product tanker market instead, which started its upturn slightly later on the clean side and have, from that moment onwards, been hovering around $20,000 a day mark. Right now, a little bit down as we speak. But you've seen our guiding for the Q1 fixtures.

Let's turn to the next page, which is Page 8, and it says market development on MRs. We show this every time, we try to be consistent with that, and comparing with the Clarkson earnings, we've been on the product tanker side about the earnings all the time. But as I said, the Q4 was such a hefty and big spike that came to the market -- well, not unexpectedly, but the level of the hike was so impossibly unexpected. But it was, to some extent, for a short period of time, and as always, you have ships being fixed at the lower market weeks before that you had to conclude there -- yes, conclude before you can jump to the next one at a higher level. So there are certainly lagging effects, both here and certainly also on the next Slide #9, which is then showing the same thing, but for Suezmax tankers.

We're not always inching the index. And Q4 2019 was certainly one of these situations. But I think I've been using or mentioning the word lagging now so many times. So we'll not do it again.

But next page -- turn to Page #10, which is the next one, which is just describing the fleet status where our P-MAX vessels, the 3 time charters out, as we mentioned before, delivered during the quarter. They are on what I would call a premium trade. At the time they were fixed, they were certainly getting a rate that comparable ships on similar age or would not have gotten, so to speak or much, much higher than they would have gotten. Two ships on a consecutive voyage charter contract, and also on the particular niche trade where the charter can fill up the space each trip and you will see a little later how they will -- are up for renewal during this spring.

And then, of course with the ice-class, we're looking to use those -- that as much as we can, where and when possible, whether it's St. Lawrence or in the Baltic. However, we can all see, at least for us, that it is in this part of the world that we haven't really seen any ice development this year, but it's not too late yet. And we have a strong stance, and that is a big premium at the time when the market is there.

IMOIIMAX vessels, nothing new, delivering the results, doing the job, doing the mixture, doing the laden/ballast ratios and we're perfectly happy with that. Suezmax, yes, in one of the better earning pools.

Let's turn to the next page, which is 11, which is the fleet list again. You can see, we feel it's a reasonably fair -- fairly spread on the charters and the spot market. Most of it should be in the spot market now, and it is in the spot market, most of it. But on the 3 ships we took a longer-term view, a big client that can utilize the ships to its maximum extent, and we have to take those opportunities when we see them. And on the 3 out of 10 on the P class, the P-MAX class. The other 2 that are on consecutive voyages is, as you can see, up for renewal now in these much better markets. So we're looking forward to those renewals, when and if they happen. Other than that, the rest is on the spot market, as you can see.

Let's turn to Page #12. And by doing so, I hand over the word -- the microphone to Ola. Please?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Sure. Thank you very much, Kim. So let's have a look at Slide #12. The results for our Q4 2019.

So the operating costs were on a similar level as 2018. The daily running costs and everything else was very much in line. So nothing special on that level. When it comes to the finance net, it was minus SEK 26.1 million, and the finance net for 2018 Q4 was actually minus SEK 47.6 million and last year, in Q4, we had a hit on the spread positions, which made the finance net a bit worse. So that was why it was a big difference. And the result after taxes then for Q4 2019, minus SEK 29.5 million.

Okay. Let's have a look at next Slide #13. So we can see the equity ratio is 29% now. And of course, you can compare it to 2018, it's a negative difference. Most of that is IFRS because now we need to have the 2 ships that is on operating lease in our balance sheet, which brings down the equity ratio quite a bit.

The available liquid funds has increased quite a lot, and that is because we have done refinancing for 8 of the P-MAX ships. And we have also done refinancing on the short facilities. We have a net increase due to a new facility from Stena Finance. So available liquid funds has gone up quite a bit. Equity per share is SEK 22.12 per share, which is interesting compared to the share price force.

Okay. Let's turn to Slide #14 and then 15.

On Slide 15, we can see some of our sustainability performance. And we are happy to report that we haven't had any LTI or LTIF this quarter. The average number of observations for vetting for the quarter was 2.2. So we had 11 observations on a total of private which is on average of 2.2, which is good.

Okay. When it comes to incidents, we had 2 incidents that was classed damage to property. And one was on Stena Paris when lightning actually struck their MF/HF antenna and one was for Stena Polaris, where one of the mooring lines (inaudible) broke, which happens sometimes. And then we had one restricted work case that was on the ship, Stena Image, where one of the crew got a sprained ankle. So nothing really big there. When it comes to high potential near miss, we had 1 incident on the Stena Important, where one of the pressure valves had a failure, but nothing happened, but it was -- something could have happened, so it's classed as a high potential near miss. And then we have 1 incident on the Stena Progress. There was a small fire in one of the changing rooms, but just -- it was just small and nothing happened there, but still could have happened. So classed as a potential near miss.

Okay. Let's turn to Slide #16. And we continue our work in trying to reduce the bunker consumption of the ships. We have a relatively small improvement for this quarter, 0.1, which meant that for the year as a whole, we had 0.24, which is less than our target of 0.3. So in a way that was disappointing, but we also need to take into consideration that we have been doing now this for quite a few years, reducing, reducing, reducing. So even at this current level, we're really focusing on it to keep reducing. And when we reduce bunker consumption, we also reduce emission to the air, which is good to keep following. We keep doing this. It is a big focus.

Okay. Kim, time for market outlook.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Okay. Thank you. Market outlook, Page 17. Turn to page -- the next page, which is just pointing to the fact that we have the lowest order book in a long time. We're down to way under 10%, which is good. And we used to say that every month without a new order is a good month because it will extend the likelihood of potential of a stable, high market going forward. So that's that side of the equation, so to speak, no order book. If you turn to the next page, which is a picture of a change in the trading patterns. There we can see a considerable amount of new oil coming in out of America, both crude and products. And we see low sulphur products going back from east to west. And I mean, from the west side -- I mean, on the crude side, we have Brazil, we have America, we have Norway increasing their productions almost to the same extent that OPEC has cut their production. So kind of a sterile gain from that point of view. However, distances are so much longer from the west to the east, from Middle East to the east, as we know. And I'm saying this -- and when saying this, I have and many others have been saying this for such a long time that this will happen, when it happens, things will sort of look bright. And I mean, we have a higher market. We have had higher market months since October, and this is one of the reasons. So I mean, it has already starts to happen, which is good. And we see new trading patterns coming up also from the sulphur directive -- of 0.5% sulphur content.

Let's turn to the next page. Summarizing it all, so to speak. Trying to put it all on one same page. Several factors pointing to a cyclical upswing in the next couple of years. We have oil demand going up of 1 million or 1.2 million barrels a day, depending on how we listen or who we listen to. Yes, I'm talking about the high U.S. exports. We already mentioned that. And the Brazilian and Norwegian exports. We have -- from the top of my point of view, a very steady growth, and that is looking promising. The inventories, I agree that it took some time before we came down to the 5-year average, much longer than I expected. But now at least we are around or just a touch above the 5-year average from OECD level for inventories, crude inventories in the world, which is good. We're at least at the average and not too high inventories.

The next box is just pointing to the lower book that we looked at and also the fact that we have low ordering as of now, which is good. Consequences of IMO 2020, the arbitrage, we talked about that, new trading patterns, and from a short-term point of view, we're listing the inefficiencies, the floating storage and the slow speed. And as you remember, these were all factors that we have mentioned many times before, now they are reality and they are there. And it has an impact on the market. And we see it already. It could take people days, it could take a number of days longer to bunker a ship and that is very, very important that you get notices on time and things like that. You have floating storage, all of it's bound to happen. We have scrubber installations. So quite a bit of number of ships are out of service, but they will come back. And you have the wild cards, you have the geopolitics that could never -- I have no -- any idea about what will happen. Weather certainly hitting us now that could have an impact of maybe 1 million barrels a day and less consumption in the Northern Hemisphere of Europe, at least, for 1 quarter, if this continues, and you have the coronavirus, which everybody is watching very closely now. You have lots of flights being canceled and canceled. So that could have an impact of several hundred thousand barrels per day in demand as well. So those wild cards, you will always have, which is why it's such a volatile market we are living on -- living in. But the structural factors quickly is going to keep that lower level -- on a higher level than years before.

So the next page is just putting it altogether in a scale. And then the demand for seaborne oil transportation seems to be growing by 3%, 4% on the supply side. And if I wanted to -- maybe some segments -- but overall, it's been a positive trend. The next page is headlined scrubber type, project type. And it's just to touch upon the subject of scrubber. Even though, you do know that we are not investing in scrubbers in our -- on our fleet. But to just give the overall numbers, if you had all the scrubber types up there, the open loops and the hybrids and the closed loop, there will be -- well, there is some 3,800 ships in general that will add scrubbers on these different types, and I would say that most of them have installed them by now, and if not now, in the next couple of months. And out of the scrubber types, the project types is -- the majority is retrofitting.

Next slide is a bit busy slide, but it shows the various clean segments from LR2s to Handy. And when we are saying, as we do, on our website, when we talk about the market and the market upturn and the number of product tankers that we expect will have scrubbers, we are arriving at a figure of around 10% to 11%. And this picture is trying to show that this is where we get that figure from. LR1s, 7% are likely to have -- or is about to have scrubbers. And 12%, 13% of the MRs and only 4% of the Handys will have, altogether in this 10-ish percentage of the private tankers, that actually will have scrubbers. So which gives us, I think, 90% won't have it, and they will be the price setters, so to speak.

Let's go to the next page, and that is also -- since we have had some questions about earnings nowadays with and without scrubbers. And Clarksons is doing a good job in putting all the various trades up there. And the difference, if you have scrubber or not and whether you have built the fortune in 2010 or you built after 2015, and you see that there is, generally speaking, a difference within each segment of $3,000 to $6,000 a day. And as most of you, of course, realize and understand the market, especially for any market, tanker market, but really, product tankers in particular could very, very much depend on where you are in the world, which is also 1 of the reasons why some of the lagging effect took place but if you are inconveniently in the wrong place when -- by the end, [the seas are shooting up.] So 4 different ways of looking at the earnings right now, between $3000 and $6000 day in each segment. So it is important that as the headline said that the 1 has to compare it apples-to-apples.

Okay. Final Slide 25. Shortest possible summary and we summarized with simple words. That the upturn is here, and we've been waiting for it -- took a little longer for it to materialize, but now it's here. But mind you, tanker markets are volatile, and it will be volatile on a higher level.

So that concludes the presentation from our side, and we go over to the Q&A session.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question comes from the line of Dennis Anghelopoulos from ABG.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

So a few questions today. First up, rates have been quite high from Q4. Some strength in Q1, some seasonal weakness now later, but also going to be quite high, at least expected in 2020. At these levels, you generate significant levels of free cash flow. What's your thoughts around the capital allocation at this point? So are you thinking about deleveraging the balance sheet, dividend, potential fleet expansion?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

We don't have any firm investment targets in new ships, something like that. We -- of course, we always keep an eye open in the markets, but nothing firm. And we've gone now from many challenging quarters to finally see the good market and we'll enjoy that, of course. So we will play a little bit cautious as we always have been, but it would also be interesting to maybe join Stena Bulk, with some chartering unit section of it, but we'll just keep watching the market and see what happens.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

All right. But in terms of capital allocation, if you don't have any direct plans, then that sort of means that you're going to build a bit of cash on the balance sheet. Is that reasonable to assume?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yes, that's reasonable to assume. If the market then continues as it is now, there would be cash. And that's good because then we can have some flexibility in what kind of (inaudible) we do. So we are flexible, and as always, so to speak, and the good cash buckets is the base for that.

--------------------------------------------------------------------------------

Joakim Ullman, Concordia Maritime AB (publ) - CEO [6]

--------------------------------------------------------------------------------

It's a fair question, Dennis, I mean, don't get us wrong here, and we might sound a little bit evasive, but we've been out over there the last couple of years and we've been refinancing -- doing refinancing a couple of times and making sure that we can move through these bad times and here we are. So yes, do we have ambitions? We sure certainly have. Do we have ideas? We do have that too. Maybe they are not as bad as far as you -- but maybe they are not bad for everyone, so that we finally say, we are going to do this and that. But rest assured that we're working on things.

--------------------------------------------------------------------------------

Dennis Anghelopoulos, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [7]

--------------------------------------------------------------------------------

All right. And then the refinancing, congratulations on that. But you added another $24 million from the facility to help your cash position build. So what's the gearing looking like now? Is it -- what's your LTV on your numbers?

--------------------------------------------------------------------------------

Ola Helgesson, Concordia Maritime AB (publ) - CFO [8]

--------------------------------------------------------------------------------

It's -- we have a loan to value of 65%. That's what the refinancing was.

--------------------------------------------------------------------------------

Dennis Anghelopoulos, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [9]

--------------------------------------------------------------------------------

Yes. So you pretty much took it up to 65%, and by doing that, you put $24 million more dollars on your balance sheet, correct?

--------------------------------------------------------------------------------

Ola Helgesson, Concordia Maritime AB (publ) - CFO [10]

--------------------------------------------------------------------------------

Yes, correct.

--------------------------------------------------------------------------------

Dennis Anghelopoulos, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [11]

--------------------------------------------------------------------------------

Okay. Perfect. And then last question, I promise. When you -- the new time charter coverage you have a lot of additional coverage going from spot to TC. Can you give a little color on what the annual contribution above cash breakeven those vessels will be providing?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Marketplace, I think we mentioned that last time, and I think you asked the same question. I mean, what the rates were and that -- this is something we did in the summer at that time. And we -- as we said, we've got a considerable premium to comparable ship types over time. So we're happy with that. And then on strategic position towards the huge clients that could be even bigger for us here in the future. So it's a bit of a strategic position, too. So -- and I think we -- I don't know, when -- I mean, we can't disclose the rate to say and I don't know what we can say overall in terms of levels, not TC levels at least now. So we have to get...

--------------------------------------------------------------------------------

Dennis Anghelopoulos, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [13]

--------------------------------------------------------------------------------

So following up on the net, you're talking about the strategic position. Are you trying to, let's say, transition more of your fleet onto TC basis? Is that something that you think would be reasonable at the levels? Also, term levels at much high levels right now.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yes. Good question, Dennis. The thing is, I mean, on the P-MAX side, would've (inaudible) compared to the rest of the world at 32, like I noted in some of cargoes but we said all the time that you need to find these trades where somebody can build them up. And so the idea with the P-MAXs is certainly to find these trades. And at the time, ideally, not at a low time, but when the matter has firmed out, which it has, for at least now, and we'll continue to do that. Yes. The long-term plan is to find a home for them. And there -- and at that time, charter them out on one time charters. That is correct.

--------------------------------------------------------------------------------

Dennis Anghelopoulos, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [15]

--------------------------------------------------------------------------------

So it's reasonable to assume that you'll try to lock in at these healthy levels. And not play it spot like some of your peers -- or pure spot like some of your peers are doing.

--------------------------------------------------------------------------------

Ola Helgesson, Concordia Maritime AB (publ) - CFO [16]

--------------------------------------------------------------------------------

Well ,yes. It is correct. Would you ask -- if you were to ask what about the IMOII class vessels would be, the other class we have? Would it be the same with them? No. We would do -- that's the spot market shifts. That's the very versatile and valuable chemical expansion too. So those are going to go spot in the system. But on the P-MAXs, you're right.

--------------------------------------------------------------------------------

Operator [17]

--------------------------------------------------------------------------------

(Operator Instructions) And as there are no further questions, I'll hand it back to the speakers.

--------------------------------------------------------------------------------

Joakim Ullman, Concordia Maritime AB (publ) - CEO [18]

--------------------------------------------------------------------------------

Okay. Thank you very much, everybody, for participating, and thanks for all the questions, and looking forward to speaking to you in April. Thank you.

--------------------------------------------------------------------------------

Ola Helgesson, Concordia Maritime AB (publ) - CFO [19]

--------------------------------------------------------------------------------

Cheers.

--------------------------------------------------------------------------------

Joakim Ullman, Concordia Maritime AB (publ) - CEO [20]

--------------------------------------------------------------------------------

Bye-bye.

--------------------------------------------------------------------------------

Operator [21]

--------------------------------------------------------------------------------

That concludes our conference call. Thank you all for attending. You may now disconnect your lines.