Dampskibsselskabet Norden A/S

CSE:DNORD

Earnings Call Analysis

NORDEN's Q3 Results: Solid Profit Amid Market Challenges

In the third quarter of 2024, NORDEN reported a net profit of $25 million, bringing the year-to-date total to $133 million. While the Freight Services & Trading unit faced an $18 million loss due to declining tanker rates, the Asset & Logistics segment thrived with a $43 million profit. Optimizing vessel portfolios and a recent acquisition of Norlat Shipping are key strategic moves. The company revised its full-year profit guidance to between $160 million and $210 million. Despite challenges, the diverse business model sustains good returns, complemented by ongoing capital returns to shareholders.

A Solid Quarter Amidst Challenges

In the third quarter of 2024, NORDEN reported a net profit of $25 million, contributing to a total profit of $133 million for the first nine months. This reflects resilience against geopolitical uncertainties and a soft tanker market characterized by weaker rates.

Freight Services & Trading Struggles

The Freight Services & Trading division experienced a net loss of $18 million, with a negative margin of $427 per day. This decline stemmed from increased supply due to crude tankers switching to clean product trades, adversely impacting tanker spot rates, despite a promising recovery in dry cargo margins throughout the quarter.

Strong Performance in Asset & Logistics

Contrasting with the struggles of the Freight Services & Trading division, Asset & Logistics thrived, generating a net profit of $43 million. This was fueled by robust earnings coverage and $14 million in gains from subleasing, alongside sustained high asset prices which elevated the company's valuation.

Strategic Actions for Long-Term Value

NORDEN's strategic focus on optimizing its vessel portfolio is evident, with plans to sell additional vessels, supported by the strong asset value. The company also possesses 48 purchase options at prices 23% below market value, indicating potential upside. Notably, NORDEN acquired Norlat Shipping to enhance capabilities in Freight Services & Trading.

Revised Outlook for Profitability

The company has adjusted its full-year profit guidance to the range of $160 million to $210 million, down from the previous estimate of $160 million to $240 million. This revision incorporates projected gains from vessel sales, with expectations of improving margins in dry cargo but declining margins in tanker activities due to weaker rates.

Continued Shareholder Returns

NORDEN emphasized its commitment to returning capital to shareholders through a combination of dividends and a new share buyback program. This underscores the company's stable cash flow and ongoing dedication to enhancing shareholder value.

Earnings Call Transcript 2024-Q3

[Jan Rindbo, executive]

Today, I'm happy to announce NORDEN's third quarter results for 2024. Despite continued geopolitical uncertainties and the tanker market impacted by weaker rates, NORDEN delivered a solid result with a net profit of $25 million in the third quarter, this brings the profit for the first 9 months to $133 million.

In Freight Services & Trading, we saw a net loss of $18 million and a negative margin of $427 per day. As expected, margins in our dry cargo operator activities improved throughout the quarter, but this was offset by weaker tanker spot rates caused by crude tankers switching over to trade clean products, which created an excessive supply of vessels in the clean market.

Asset & Logistics generated strong earnings with a net profit of $43 million, driven by high earnings coverage and positive contribution from sublease gains of $14 million. The continued high asset prices supported the value of NORDEN's owned and leased fleet repurchase options and an estimated net asset value of Assets & Logistics was DKK 433 per share by the end of the quarter.

Over the past 12 months, NORDEN have created a return on invested capital of 15%, confirming the long-term value creation from our activities despite the short-term headwinds in the Freight Services & Trading unit.

Now let me give a brief update on the business performance and the strategic progress during the quarter. Following the strong development in asset values, we are focusing on optimizing our vessel portfolio. In the third quarter, we have entered into agreements to sell further vessels, some from declared purchase options at significant future sales gains that will be realized in the coming quarters as we realize net asset values.

Of the current portfolio, 48 purchase options can be declared before the end of 2025 at average strike prices that are currently 23% below market value, adding value upside and agility to the business. Furthermore, last quarter, we announced the agreement to acquire Norlat Shipping with the ambition to further grow and access new competencies and customers to NORDEN.

In early September, the acquisition was approved by authorities, and the business activities will be integrated into Freight Services & Trading. This is a great addition that will allow us to offer our customers fully flexible solutions as a global provider of ocean-based freight services for bulk and project cargo of all sizes. Overall, we are delivering on all KPIs set out in our strategic scorecard, confirming that we are on track to deliver on our long-term strategic commitments.

Now let's turn to the outlook. On the back of a weaker tanker market, we are narrowing our full year guidance, expecting a net profit in the range of $160 million to $210 million compared to $160 million to $240 million previously. This includes gains from sale of vessels.

In Freight Services & Trading, the margins in the dry cargo activities are expected to continue to improve whereas margins in the tanker activities are expected to decline as a result of weaker tanker rates.

Assets & Logistics earnings, will continue to benefit from high coverage. The high newbuilding prices and low order book are expected to support asset values, and we will continue to focus on realizing this value.

The high asset prices and charter rates continue to benefit the owner part of the business. But at the same time, the weaker spot market is challenging for the operator part of the business. It is the diversity of our business model that enable us to generate good returns overall.

Finally, we are continuing to distribute a large part of our profits to our shareholders through a combination of a dividend and a new share buyback program. Thank you for watching.