Dampskibsselskabet Norden A/S

CSE:DNORD

Earnings Call Transcript 2019-Q3

[Jan Rindbo, Chief Executive Officer]

A seasonally weak tanker market, NORDEN-owned tankers taken out of operation to have scrubbers installed and Dry Operator successfully positioning for the next quarter resulted in NORDEN realizing an adjusted result in the third quarter of 2019 of minus $4 million. The result corresponds to an EBIT of $12 million, which was positively impacted by a $4 million profit from sale of vessels. Cash flows from operations in the third quarter amounted to $31 million, bringing the total cash flow from operating activities in the first 3 quarters to more than $115 million.Turning to our business units.Dry Operator generated an adjusted result for the quarter of $3 million. Dry Operator used second and part of the third quarter to build a long and regionally optimal position. This started to be locked in profitably in the third quarter and will benefit NORDEN even more in the fourth quarter. On that ground, we expect Dry Operator to deliver a good finish to the year with a guidance of a positive full year result of between $5 million and $20 million.With the usual high coverage, Dry Owner has been well protected from the challenging dry cargo market in the first half of 2019. The market rebounded and remained strong throughout the third quarter, but despite this, the coverage in Dry Owner has remained attractive on a year-to-date basis. The market improvement in the third quarter was primarily triggered by an increase in Brazilian iron ore exports, which in combination with high coal and minor bulk imports to both China and India lifted the rates on all dry cargo vessel types. This was reflected in the average Baltic earnings for Panamax and Supramax vessels which were 29% and 6%, respectively, higher compared to the same period last year. In all, Dry Owner generated an adjusted result for the quarter of $2 million.At the end of the quarter, rates started to weaken, but they have remained at healthy levels. We expect the reduced fleet supply caused by increased dockings to support rates for the rest of the year. A large proportion of the dockings is related to installation of exhaust gas cleaning systems, so-called scrubbers, ahead of the implementation of the IMO 2020 sulfur regulation. NORDEN is also well under way with our scrubber installation program. When the new regulation comes into force on the 1st of January 2020, 16 NORDEN-owned tankers will be scrubber fitted, ready to make the most of what we expect to be a strong tanker market.However, the third quarter turned out to be somewhat disappointing for Tankers. The company's Handysize tankers generated average daily earnings of close to $11,000, while daily earnings in the MR fleet amounted to $13,500. NORDEN thereby outperformed the average 1-year T/C rate during the last 12 months with 4%, which corresponds to extra daily earnings of more than $500 per vessel. Despite this performance, the third quarter market resulted in a loss of $8 million for the NORDEN Tanker business.In October, a scramble for crude tankers pushed rates to record levels. The strong market has also started to affect the product tanker market as refineries increased runs to produce the fuels necessary for the IMO 2020 sulfur regulation as well as a need for wide-scale distribution of such. On that basis, NORDEN expects a good and strong market well into next year.Here and now, the fourth quarter looks promising. And with the Dry Operator well positioned and many open-owned and chartered days in Tankers, we're looking forward to delivering a good result. On that basis, we maintain our most recently announced guidance of an adjusted result for the year of $10 million to $45 million.Thank you for watching.