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Edited Transcript of CCOR B.ST earnings conference call or presentation 15-Aug-19 1:00pm GMT

Q2 2019 Concordia Maritime AB Earnings Call

Gothenburg Sep 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Concordia Maritime AB earnings conference call or presentation Thursday, August 15, 2019 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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Operator [1]

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Welcome to the Concordia Maritime AB Q2 Report 2019. (Operator Instructions) Just to remind you, this conference call is being recorded.

I'll now hand the floor to our host, CEO, Kim Ullman; and CFO, Olga Helgesson (sic) [Ola Helgesson]. Please begin.

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

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Thank you. Thank you very much. Kim Ullman here. And welcome, everybody, to the second quarter results telephone conference for Concordia Maritime. So together with me here is not Olga Helgesson, it's Ola Helgesson, who is the CFO. And we will go through the presentation as usual. We have probably a few slides this time, but I'll talk a little bit more to the point. But hence, the Q&A session afterwards is quite important, of course.

So if we all turn to Page 3, where you see the second quarter in short. And the table shows that the operating result for Q2 was minus SEK 7.8 million and the result after tax was SEK 39.2 million.

As you can see in the table, this is better than 2018. You can also be able to realize that the first half of this year resulted in a profitable operating result. The time charter equivalents for the various segments are shown as $15,100 per day for the product tankers and $19,200 per day for the Suezmax tankers. This is pretty much as per our expectations. However, the Q3 has not really started well, I have to say. The general market situation has not really improved.

And as you can see, the product tankers have been fixed at $10,800 per day, as guiding for the Q3 fixing, and that's certainly a disappointment. We have bad markets, but also, every now and then, in bad markets you find yourself in a situation where you fail subjects on many cargoes and you've been -- you incur quite a bit of waiting. That could happen, and it has happened a couple of times for us in the beginning of Q3. Hence, the slightly poorer result for the first start -- or the start of Q3.

Suezmax tankers is at $19,500 a day. And the blue box is just highlighting the fact that the market was weak, as we expected. Q1 was okay, even profitable. We have the Q2, that we expected to be bad, and it was. And Q3 started bad, but we certainly have hopes, and we are coming to that later, that this will be recovered towards the fall or the autumn.

Events after the period. We're happy to announce that 2 ships have been fixed on 8 months consecutive voyages in the U.S. Gulf to Brazil trade on good terms, that we're certainly very happy with. And again, we'll come back to that when we talk about the fleet.

If we all turn to Page #4, which is following our standards and our normal procedures to compare it to the market, the Clarkson market. And you can see our own results for the MRs that's on the market. But I think we can also comment the fact that it is, at least, in line, if not better than most of our peers for the Q2 at the $15,000 a day mark.

The next slide is showing the same thing for Suezmaxes. And we've said that many times before, that there are quarters where we're not on top of the market. But over the years, we have always had quite a good result compared to markets and peers as well, and this continues.

Next page would be Page #6, which is just given the current fleet status. And there's not much different to last time around on the P-MAXs we had during the quarter to TC contracts. And then we added the 2 consecutive voyage charter contracts after the event -- after the Q2 had expired.

IMOIIMAXs still delivering good results, still doing what it should be doing and what it's built for, an 80% laden and a 20% ballast is a good ratio. Suezmax is doing fine. And we still are participating in a couple of MRs together with Stena Bulk.

Next page, fleet and employment. As you can see, with the exception of the Stena Performance and Stena Polaris, who has -- who have CVC contracts up until second quarter next year, the rest of the fleet is exposed to the spot market and this is certainly by design.

We are expecting the markets to take off, and we have, but that is worth noted -- to note that we have in a few occasions, actually said no to time charter contracts or similar contracts that have been not paying what we had expected. So we have said no to some in our anticipation of an improved markets going forward.

That concludes Page #7. I will hand over the word to Ola to go through the figures and the sustainability figures. And I will be back later on with some market updates.

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

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All right, Kim. Thank you very much. So we're on Slide #8, results Q2 2019. So the operating cost for the quarter was SEK 260.5 million, and that is very much in line with our budget and expectations. The financial net for the quarter was minus SEK 31.4 million. And the result after tax ended up at SEK 39.2 million minus.

All right. Next slide, #9, where we can see that the equity ratio in the end of the quarter was 32%. And this is after the implementation of the new IFRS rules, where 2 of the ships that was previous on operating lease is now included in the balance sheet, hence, lowering the equity ratio. The equity per share is at SEK 23.4 per share.

Okay. Let's go to the next slide, #10, where we have specification on cash on accounts and undrawn cash and short in -- short placements for investments, which all amounts to USD 31.15 million at the end of the quarter.

All right, let's turn to Slide #11, sustainability, and we keep going to Slide #12, we can see some numbers. And here, we can see that we have had no LTI for the quarter. No inspections, more than 5 observations, very good.

And during the quarter, we had 7 vetting inspections, where 12 observations were noted, giving an average of 1.7 observations per vetting, which is very good, and it's actually better than the target.

During the quarter, we also had one medical treatment case on the Stena Polaris, where a crew member just fell and hurt his shoulder, but nothing serious. We also had 2 high potential near misses, one was on Stena Image, where we had a smaller cargo spill on deck while loading. And then we had at Stena Performance, where one of the buoy mooring actually unexpectedly released, but it all ended up well, so that's a high potential near miss.

Okay. Next, Slide #13. We are continuing our program to lower the bunker consumption. For the quarter, we had 0.18 less fuel consumption per day. And if we sum the first half of the year, it's 0.27, which is very close to the target of 0.3. And this is very important for us, and we keep focusing on it. And since we consume less fuel, we also have less emissions to the air, which you can see in the numbers.

Okay. Kim, I hand over to you again.

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

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Yes. Thank you. Page 14, which we can skip quickly and go straight into Page 15. We're talking about the market outlook. I realized that this page or picture doesn't really talk about the future, it's more about the current state, but it goes to show, and the reason we're showing it is that 2019, although it's been not at all very good, is above 2018. And that we, towards the end of 2018, saw a turning point, which we called it in one of the quarterly reports. So we certainly saw that as a turning point.

So 2019 is above 2018. And you can say, to some extent, that is a poor comfort because it's comparing with 2018, which was a low mark in the 5-year range, fair enough. But we're talking about -- in the 2018 reports, we talked about a recovery coming soon, and we think that, that started already in Q4 '18.

The next slide, 16, shows the same thing for the MRs, and nothing spectacular. It is just showing that it's above 2018. But importantly, what we like to say about this picture is also that we expect a similar development towards the end of the year, as we had in 2018.

And why do we expect that? Well, if we turn to the next page, 17, that's a summary of the outlook. First half '19, we know that we had a high fleet supply and refinery maintenance and OPEC production cuts and things like that.

And in the second half, now going into the second half since we started a few months ago or some weeks ago, we're going into a phase where we have fewer newbuilding deliveries. And that is important because when new ships are coming out of the shipyards, they have a tendency of, to a big degree, discount in the market and need to get their vetting approvals in order and all of that. So with fewer newbuilding deliveries, that is certainly good. I mean, it's still the number of ships that has come to the market, I realize that. But it is at least the influx of newer ships is shorter, which is good.

We certainly expect more off hire due to scrubber installations. And just a comment on all these various points, we are marketing here is, of course, we're not going to be very different to any other of our peers in all these reasoning, we're using the same reasoning, which is all time. But we are definitely certain that this is going to have an effect.

For instance, the scrubbers installations, I think it's only 10% to 15% that had done the scrubber installations so far. And so there's still a bunch -- a big bunch that is expected be doing it from now on towards the end of the year. So we'll have a bit of a catch-up effect there and lots of ships going off hire to do that. And there are delays in these installations as already, so we're expecting a lot of ships going off hire for that. The refineries are back on track, back up and running and making good margins again, and that is going to increase the flow of oil cargoes.

So seasonally, we think that the second half will show an increase for, I mean, seasonality reasons, but also for the 3 reasons we just mentioned. And then we put a question mark on OPEC, whether they are going to come back gradually during the course of the autumn or not, we believe that there is a good reason to believe that. But it remains to be seen. But when they do, and if they do, that is certainly going to help spot market even further.

But this goes into 2020, a bit of an oil market supply crunch. We need a lot of new iron to make the new products, of diesel oil for IMO 2020. And so -- and in addition to that, we have the IMO 2020 effects and they've all been listed there. We have arbitrages coming up, inefficiencies and trade growth, only I think somebody came up with a 1% to 2% net extra demand growth on top of the demand growth we already have. So there is certainly an incentive to trade much more with the heavier products being produced in the west and shipped out to the east to be refined further and so on.

And floating storage, speed could be a factor here, too. So this is a short way of -- because I think you've seen most of it already and heard most of it already from many others. The story stands. Q3, the market didn't really happen in the first part of Q3. There is a delay, there's no doubt about that. OPEC extended their cuts. And when they'll come back, we don't know, but we believe they'll come back this winter. But even if the store is delayed, it is not derailed as somebody wisely put it the other day. So we are still standing by our story.

So that was 17 and 18. Then last page is just to summarize what we've been through. In the second quarter, we have the result of SEK 39.2 million and SEK 7.8 million in operating results, good sustainability KPIs. The operation is just doing fine. And for all the reasons we've said, we believe the market will certainly improve considerably during the autumn and the winter. And we are in a good position to take advantage of that.

So that concludes the presentation part, and 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 comes from the line of Dennis Anghelopoulos of ABG.

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

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I just want to ask a couple of questions here. I saw that the standard performance in the Polaris, we're taking them 8 to 10 months contract until 2Q 2020, this U.S.-Brazil trade from my understanding. Can you give me -- give us some color on -- if it's something you could do repeat business for your other vessels and maybe a bit on how profitable it is? Is it fixed at around time charter levels or something a bit more profitable because you're sort of locking away the Q4 [financials].

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

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Yes, that's a good question. Let's start with the other hand. We said no to a couple of other alternatives. We have to do time charters, not for those ships but for other ships. We could have extended the ones we had and with the other charterers.

And the levels that we were offered were fair, and nothing wrong with that, and definitely with a premium for the P-MAX type. It's still not good enough on level what we were expecting.

But those 2, through the CVC, the voyage-related formula we had put together for this trade. It generates, even though it's fixed rates, but it generates returns that we said, okay, at that level, we're certainly willing to hedge off 2 ships.

And it's also important to a new customer to build up that trade to potentially, as you see, add more, that remains to be seen. I'm not saying anything about that, but to get that within and make this contract. But I don't think I can mention the level of the contracts, but it's profitable and it's good. And if I'm not allowed, and I am not allowed to mention the actual TCE levels. But I don't know if I can express it better than the fact that we are quite satisfied with that return that we are seeing on those 2. And as I said, it's good profits. And with that -- and with the future expectation of that customer we said, "Okay, 2 ships. Off you go."

I can follow on, on the question. But yes, we're giving out -- it already Q4, Q1, but come Q1 next year, and we have every reason to believe that they're going to continue with the ship in Q1, those and extensions that are needed to be discussed. And that's likely to be a good position to discuss expansions.

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

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All right. And I mean, can you put a bit more color as well on why you're failing subjects? Is it, like, because the market was weakening? Or was that because of just very challenging markets? If you can add some color on that.

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

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Bad markets, challenging markets, lots of ships. I mean, there's a reason why the market is bad, there's not a lot of oil in the market. Why isn't there a lot of oil in the market? Well, their arbitrages might not work over time, so traders are trying to put together in cargoes and the prices aren't correct and that -- it's a typical pattern that happens in bad markets as you do lose a lot of subjects. In good markets, things flow. And you'll not produce (inaudible) unless you're pretty damn sure that you get the cargoes also.

So I'd say it's a typical thing that could happen during a bad period. And at times, you're in a spot where, okay, it dries out, cargoes dries out, and deals are not being able to be put through and so on. And we always want to a little bit extra cargo on our ships and that's not often -- that's not always that we could manage that.

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Operator [6]

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(Operator Instructions) As there are no further questions coming through at this point, so I'll hand back to our speakers for the closing comments.

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Joakim Ullman, Concordia Maritime AB (publ) - CEO [7]

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Okay, if no further questions, okay, fair enough. So we thank everybody for listening, and looking forward to speaking to you again in November. Thank you very much.

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

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Thank you.