Dampskibsselskabet Norden A/S

CSE:DNORD

Earnings Call Transcript 2020-Q2

[Jan Rindbo, Chief Executive Officer]

With the transition into a data-driven and trading focused company continuing. NORDEN delivers an adjusted result of $29 million for the second quarter of 2020. This means we realized a first half result of $58 million. NORDEN thereby delivers the strongest second quarter result since 2015 in a continued challenging environment. And furthermore, NORDEN raises guidance for the full year results. Looking at business units, Asset Management delivered an adjusted result of $11 million for the quarter. Asset Management has profited significantly from shifting exposure from Dry Cargo to Tankers during the past 2 years, in line with our strategy of asset trading and Asset Management of our cyclical market exposure. With Dry Cargo asset values declining further in the second quarter, we now believe that prices have declined sufficiently to present a good trading opportunity to buy and hence, increase our dry cargo exposure again. NORDEN has therefore, acted swiftly to acquire 7 Ultramax vessels, consisting of 6 new buildings and 1 secondhand vessel. Two of the new buildings have already been sold and leased back on attractive terms with good optionality. In line with the strategy to focus more on trading of assets and being a more agile owner, NORDEN has established a joint venture with Synergy Marine Group, which will take over the responsibility for the technical management of NORDEN's tanker fleet. In addition to the added flexibility, the new structure is expecting result in significant cost savings, which, in combination with forecasted savings from the streamlining of certain finance functions early in the year will amount to $7 million to $8 million annually. Dry Operator proved the resilience of its business model during a quarter with extremely weak spot markets, generating an adjusted result of minus $4 million. During the first half of 2020, Dry Operator has thereby realized a small profit despite market turmoil and operational disruptions in the wake of COVID-19. In expectation of a weak market, the business unit ended the quarter with high cargo coverage, which helped to protect earnings. During the quarter, Dry Operator actively invested in its position for the second half of 2020 by taking many short period vessels and executing backhaul cargos. These actions have impacted the Q2 result negatively, but are forecasted to add substantial value in the second half of 2020, where market and trading prospects are brighter as cargo volumes are predicted to recover somewhat with eased COVID-19 restrictions. Amidst a high volatile market, Tanker Operator utilized the strong spot rates and an active management of the position to deliver an adjusted result of $22 million. Anticipating a strong market, the business unit had built up a significant position of time charter tonnage, which benefited from the significant spike in rates throughout April and May. Tanker Operator has since used a strong second quarter rate environment to reduce forward market exposure through time charter cover, at attractive rates in expectation of a weaker market environment in the second half of 2020. Nevertheless, Tanker Operator earnings will be much weaker in the coming quarter due to the significant decline in spot rates. This quarter also saw the unit enter into a strategic partnership with tanker owner, Diamond S, where NORDEN will provide commercial management of 28 Diamond S MR Tankers through the fully owned Norient product pool. This brings the total number of vessels managed by the pool to around 150, making it 1 of the largest tanker operators in the world. Despite the weaker tanker market outlook, NORDEN raised guidance for the full year. Following a strong second quarter result, and an expectation of Dry Operator generating substantial value in the second half of the year, we now expect to deliver an adjusted result in the range of $40 million to $80 million. Furthermore, the company has decided to initiate a share buyback program of up to $10 million which will be announced separately later today. Thank you for watching.