Dampskibsselskabet Norden A/S

CSE:DNORD

Earnings Call Transcript 2018-Q4

[Jan Rindbo, Chief Executive Officer]

NORDEN is increasingly becoming an asset-light business. Today, less than 15% of the vessels we operate are owned. This gives flexibility and agility, and 2018 called for both. While the dry cargo market for most of the year offered a gradual improvement, the tanker market suffered severely from overcapacity and low transport demand.On that background, NORDEN generated an adjusted result of $20 million, which was in line with the latest guidance. The result corresponds to an EBIT of $39 million and marks another step in the right direction of making NORDEN more profitable. In November 2018, NORDEN initiated a share buyback program of $10 million. On top of this, the board proposes that a dividend of DKK 2 per share is paid to the shareholders, bringing the total return to shareholders to $23 million.One of the ways we are increasing the value generation and return on equity further is by investing in the future. In 2018, we invested in the Dry Operator business, the installation of scrubbers and the acquisition of 4 MR product tankers, three investments that will support the value generation in both 2019 and beyond. And despite these investments, NORDEN's financial position remains solid. At the end of the year, available cash amounted to more than $270 million.Turning to our business units. 2018 was the first full calendar year with the Dry Operator and Dry Owner set up. When we established Dry Operator, we had high expectations and rightly so we can see today. With constant and agile adjustment of the market exposure, Dry Operator achieved an adjusted result of $30 million. The result was generated by more than 96,000 vessel days operated with an average margin of $310 per day.More than half of the result was delivered in the fourth quarter, which in contrast to the rest of the year offered weakening markets. Dry Operator, however, was positioned for this and generated $17 million during the quarter. This strong result proves the ability of the platform to generate value in both rising and falling market conditions. With use of advanced analytics, close customer interaction and industry-leading execution of voyages, Dry Operator can be profitable, even when the market is softening by constantly optimizing its market position.Dry Owner, which handles NORDEN's long-term exposure, had also positioned the portfolio well to the markets in 2018. Dry Owner generated an adjusted result of $18 million in a generally healthy dry cargo market. Demand grew by 2.7%, primarily driven by increased transport demand for coal and minor bulk, commodities that favor NORDEN's core vessel types of Supramax and Panamax.During the year, Dry Owner used the reasonable rates to reduce forward exposure significantly. As a result, 89% of the vessel days in 2019 are covered. Another focus area was to increase the optionality. At year-end, Dry Owner had 35,000 optional days in the T/C portfolio. Compared to the number of open days in the portfolio, the optionality stands at 1 to 8. So for every firm open day, NORDEN has 8 optional days available. This gives flexibility and significant upside in the portfolio.The same upside potential is also present in our other large business segment, product tankers. During most of 2018, the product tanker market faced severe headwinds as an otherwise reasonable oil demand was met by draws from inventories. And especially the third quarter proved difficult, the rates reaching some of the lowest levels seen for a decade.Despite a declining tanker market throughout most of the year, NORDEN managed to generate daily earnings on par with the one-year T/C rate. This good operational performance could however not prevent an overall loss of $28 million in adjusted result for the year. During the year, we continued to expand the short-term activity. And at year-end, NORDEN had a capacity of 2,600 short-term days and notably a further 4,100 days of optionality in 2019 and 2020. In all, Tankers entered 2019 with nearly 13,000 open days. To this should be added the optional days, which may well become valuable as we expect the tanker market to improve in 2019.So the year has started with much healthier tanker rates than in 2018. In dry cargo, though, the market has had a very rough start to the year. We have, however, covered a considerable part of the Dry Owner exposure and expect the Dry Operator to be able to generate considerable value in volatile markets providing good trading opportunities. So in all, we expect an adjusted result of $25 million to $60 million. This would mark the third consecutive year with profit and another step in making NORDEN more profitable, and we look forward to delivering. Thank you for watching.