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Earnings Call Transcript

Earnings Call Transcript
2021-Q4

from 0
Operator

Hello and

welcome

to

NORDEN

A/S

Q4

Report

for

2021.

For

the

first

quarter

of

this

call,

all

participants

will

be

in

listening-only

mode,

and

afterwards,

there

will

be

a

question-and

answer-session.

Today,

I

am

pleased

to

present

CEO,

Jan

Rindbo;

and

CFO,

Martin

Badsted.

Please

go

ahead.

J
Jan Rindbo
Chief Executive Officer, D/S Norden A/S

Thank

you

very

much,

and

welcome

to

the

presentation

of

NORDEN's

full-year

result

for

2021.

Thank

you

for

dialing

in

all

following

the

presentation

online.

My

name

is

Jan

Rindbo

and

I'm

the

CEO

of

NORDEN.

Together

with

our

CFO,

Martin

Badsted,

we

will

today

be

presenting

our

full-year

result.

You

can

follow

the

presented

slides

on

screen

all

by

downloading

the

presentation

from

our

website.

We

will

refer

to

the

slide

numbers

for

those

of

you

dialing

in.

Turning

to

slide

2,

you

can

see

today's

agenda

outlined.

We

will

start

representing

the

main

results

of

2021

on

a

group

level.

We

will

then

go

through

results

and

highlights

for

each

individual

business

unit.

Following

this,

we

will

comment

on

the

market

outlook

for

dry

cargo

and

tankers.

And

finally,

we

will

present

our

full-year

guidance

and

summarize

the

year

before

we

open

up

for

the

usual

Q&A

session.

Please

turn

to

slide

number

4.

2021

was

a

remarkable

year

for

NORDEN.

During

a

year

where

we

celebrated our

150-year

anniversary,

we

also

achieved

the

best

result

for

NORDEN

in

11

years

with

a

profit

of

$205

million.

NORDEN

has

delivered

sustained

profits

over

the

past

five

years,

while

at

the

same

time,

growing

our

business

at

an

average

of 16%

per

year.

This

is

a

great

testament

to

our

organization,

business

model,

and

performance

over

the

period

in

volatile

markets

that

only

grow

2%

to

4%

per

year.

And

it

is

a

good

example

of

NORDEN's

risk-reward

profile,

where

we

are

capable

of

capturing

upside

value

in

rising

markets

while

protecting

against

downside

in

weak

markets.

We

are

pleased

to

share

this

great

result

with

NORDEN's

shareholders

with

a proposed

dividend

of

DKK

18

per

share

for

2021,

representing

54%

of

the

adjusted

results.

In

addition,

NORDEN

will

initiate

a

new

share

buyback

program

of

up

to $30

million.

Based

on

good

positioning

and

active

trading

in

a

continued

strong

and

volatile

dry

cargo

market,

NORDEN

expects

profit

for

the

year

to

improve

further

to

a

range

of

$210

million

to

$280 million,

including

currently

known

best

sales of

gains

of

$37

million.

Turning

to

slide

number

6.

We

will

take

a

closer

look

at

our

business

units.

Asset

management

generated

a

profit

of

$5

million

but

created

significant

value

that

is

not

directly

measured

in

this

result.

The

portfolio

of

owned

and

leased

vessels

increased

in

value

to

$1.3

billion

at

the

end

of

the

year.

Net

asset

value

increased

to

DKK

262

per

share.

The

business

unit

actively

invested

in

cheap

tonnage

during

2020

and

early

2021.

And

as

cover

contracts

have

been

gradually

renewed

during

last

year,

this

will

benefit

results

significantly

from

2022.

This

comes

on

top

of

significant

upside

value

on

NORDEN's

large

number

of

extension

and

purchase

options,

which

I

will

elaborate

on.

Now

please

turn

to

slide

number

7.

NORDEN

has

a

large

number

of

purchase

and

period

extension

options

on

our

leased

vessel

portfolio.

And

these

are

becoming

increasingly

attractive

as

market

rates

moved

above

the

strike

prices.

At

the

end

of

2021,

Norden

had

more

than

65,000

period

option

days,

which

corresponds

to

180,000

full

year

extension

periods.

We

had

71

purchase

options

with

a

majority

on

dry

cargo

vessels.

Norden

has

37

extension

options

on

dry

cargo

vessels

and

9

extension

options

on

tankers

that

are

callable

before

the

end

of

2024.

These

optionality

adds

to

our

risk

reward

profile

as

an

asset-light

business

that

can

operate

more

[ph]



efficiently (00:04:41)

in

volatile

markets,

having

significant

upside

potential

in

both

markets.

Turning

to

slide

number

8,

please.

Dry

operator,

generated

an

outstanding

result

of

$230

million

and

actively

positioned

itself

to

capitalize

on

volatile

and

rising

dry

cargo

rates.

Expanding

vessel

capacity

early

in

the

year

enabled

dry

operator

to

profit

under

a

large

spot

rate

increases

during

the

second

half

of

the

year.

Measured

per

vessel

day the

result

corresponds

to

a

margin

of

over

$1,900

per

day.

It

is

important

to

emphasize

here

that

the

extraordinary

result

is

not

purely

market-driven.

It

is

also

a

result

of

quick

and

decisive

portfolio

adjustment,

combined

with

strong

operational

performance

across

regions

and

vessel

types.

Turning

to

slide

9,

please.

Tanker

operator

generated

a

loss

of $30

million

for

the

year,

operating

in

very

poor

markets.

The

business

unit

continued

to

reduce

its

exposure

and

optimize

its

cover

contracts

while

preparing

for

future

rate

improvements.

The

business

unit

is

focused

on

creating

an

optimal

vessel

portfolio

for

2022

as

we

do

believe

the

market

bottomed

out

last

year.

This

was

mainly

done

through

time

charter

contracts,

the

one-year

extension

options,

providing

good

upside

potential

in

the

second

half

of

2022

and

2023

when

we

expect

better

market

conditions.

At

this

point,

I

will

hand

over

to

Martin,

who

will

provide

an

overview

of

our

two

consolidated

business

units,

as

well

as

an

update

on

the

market

outlook.

Turn

to

slide

number

11,

please.

M
Martin Badsted
Chief Financial Officer, D/S Norden A/S

Thank

you, Jan.

From

Q1

onwards,

we

will

be

reporting

based

on

our

two

new

business

units,

which

were

announced

late

last

year.

Assets

&

Logistics

focuses

on

NORDEN's

investments

and

includes

our

asset

management

business

as

well

as

the

newly

established

logistics

and

climate

solutions

team.

This

new

team

will

provide

our

customers

with

an

integrated

service

combining

port

logistics

with

ocean

freight

as

a

new

business

area

and

growth

opportunity

for

NORDEN.

Our

other

business

unit,

Freight

Services

&

Trading,

is

our

asset-light

business

unit,

which

groups

NORDEN's

short-term

freight

activities

previously

organized

in

dry

operator

and

tanker

operator.

By

consolidating

our

freight

service

teams

across

our

two

primary

markets,

NORDEN

further

strengthens

its

scalable

platform.

Freight

Services

&

Trading

would

have

generated

$199

million

in

profit,

which

corresponds

to

the

combined

results

for

the

dry

operator

and

tanker

operator

during

2021.

We

expect

this

simplified

business

unit

structure

will

further

enhance

NORDEN's

performance

and

enable

NORDEN

to

continue

its

path for

profitable

growth

to

the

benefit

of

our

shareholders.

Turn

to

slide

12,

please.

At

the

end

of

2021,

the

estimated

market

value

of

NORDEN's

combined

portfolio

of

owned

and

leased

vessels

amounted

to

$1.3

billion.

When

adjusting

for

cash,

debt,

and

other

balance

sheet

items,

this

results

in

a

net

asset

value

per

share

of

DKK

262.

On

top

of

this

comes

the

long-term

value

generation

from

the

combined

operators

now

integrated

in

freight

services

and

trading.

When

looking

at

the

net

result

over

the

last

12

months,

this

amounted

to

$199

million,

and

annualized

earnings

since

2019

amounted

to

$101

million

and

an

average

net

profit

per

vessel

day

of

$638.

This

means

our

asset-light

business

is

making

approximately

$100

million

in

annual

profits

historically,

which

would

be

equivalent

to DKK

100

per

share

when

applying

an

earnings

multiple

of

6.

Turn

to slide

15,

please,

for

our

market

outlook.

In

dry cargo,

asset

prices

and

period

rates

are

expected

to

remain

strong

during

2022,

although

the

escalating

conflict

in

Ukraine,

remaining

COVID-19

disruptions,

and

macroeconomic

uncertainties

are

expected

to

cause

continued

market

uncertainty

and

volatility.

We

expect

congestion

and

other

market

inefficiencies

to

remain

high

during

the

year.

And

while

there

was

a

slowdown

in

Chinese

imports

during

the

end

of

last

year,

we

expect

our import

levels

to

accelerate

in

the

second

half

of

2022.

Adding

to

this,

we

expect

markets

to

a

larger

extent

to

be

driven

by

rest

of

world

activity.

On

the

supply

side,

the

low

supply

growth

continues

to

support

the

dry

cargo

market, with

new

building

contracting

remaining

at

around

4%

of

the

global

fleet.

Container

vessels

crowded

out

shipyard

capacity

and

in

addition,

increase

in

prices

provide

support

to

dry

cargo

asset

prices.

Therefore,

global

fleet

growth

is

expected

to

remain

low

at

around

2%,

2.5%

this

year

and

next.

Please

turn

to

slide

16.

If

we

look

at

the

tanker

market,

fundamentals

are

improving

and

we

expect

a

better

second

half

of

the

year.

[indiscernible]

(00:10:05)

crude

and

product

volumes

are

back

to

pre-COVID

levels

and

oil

inventories

are

record

low.

The

main

obstacle

to

improvements

remained

oil

supply,

which

we

believe

will

gradually

increase.

The

ongoing

Ukraine

conflict

and

sanctions

on

Russia

have

significant

uncertainty

to

volumes

being

exported

from

Russia,

but

may

also

lead

to

higher

average

transport

distances

and

[ph]



lower term models (00:10:27).

For

now,

we

think

this

will

be

marginally

positive

for

rates.

The

low

order

book

of

product

tanker

vessels

continues

to

protect

asset

prices,

which

have

remained

relatively

stable

and

further

supported

by

increased

scrapping

of

vessels.

Similar

to

the

dry

cargo

market,

container

vessel

newbuildings

are

effectively

crowding

out

other

newbuildings.

While

rising

fuel

costs

compound

the

situation.

Global

fleet

growth

is

expected

to

be

around

2%

in

both

2022

and

2023.

Now, I

will

hand

you

back

over

to

Jan to

go

through

our

guidance

and

some

final

remarks.

Turn

to

slide

18, please.

J
Jan Rindbo
Chief Executive Officer, D/S Norden A/S

Thank

you,

Martin.

Norden

expects

profit

for

the

year

to

improve

further

to

a

range

of

$210

million

to $280 million

included

currently

known

vessel

gains

of

$37

million.

Going

forward,

Norden

will

include

gains

and

losses

from

vessel

sales

and

profit

guidance

in

our

prior

profit

for

the

year.

The

Assets

&

Logistics

business

unit

expects

much

better

earnings

in

2022

based

on

high

coverage

at

attractive

rates

on

the

dry

cargo

fleet

entered

into

during

2021.

High

coverage

on

the

tanker

fleet

means

that

the

business

unit

is

well

protected

against

the

weak

tanker

market.

Vessel

sales

gains

are

expected to

contribute positively

based

on

the increases

in dry

cargo

vessel

values

seen

during

2021.

The

Freight

Services

&

Trading

business

unit

expects

a

net

result

somewhat

lower

than

the

combined

result

for

the

two

operators

in

2021.

The

expectation

is

based

on

continued

5%

to

10%

growth

in

activity

and

a

margin

per

vessel

day,

which

is

higher

than

the

average

realized

over

the

last

three

years,

but

below

the

record

level

of

last

year.

For

both

business

units,

the

distribution

of

earnings

per

quarter

is

expected

to

be

more

front-loaded

than

normal.

Given

the

escalating

conflict

in

Ukraine,

remaining

COVID-19

disruptions

and

macroeconomic

uncertainties

in

general,

the

market

uncertainty

and

volatility

is

expected

to

remain

elevated.

New

sanctions

targeted

at

Russian

exports

may

emerge,

which

on

balance

is

expected

to

be

slightly

negative

at

dry

cargo

rates

and

slightly

positive

for

tanker

rates.

Our

trading-oriented

strategy

means

we

are

well

placed

to

deal with

this

uncertainty

and

are

highly

responsive

to

customer

and

market

changes.

Turn

to

slide

number

19,

please.

To

sum

up,

NORDEN

realized

the

first

annual

result

in

11

years

with

a

profit

of

$205

million

and

a

return

on

equity

of

22%.

NORDEN

is

building

a

strong

track

record

of

sustained

profitability,

combined

with

activity

growth

over

the

past

five

years.

With

our

consolidated

business

units,

we

expect

recurring

earnings

with

less

volatility

and

new

revenue

streams

based

on

innovative

client

solutions.

We

are pleased

to

share

this

great

result

with

NORDEN's

shareholders.

The

board

proposes

a

dividend

of

DKK

18

per

share

for

2021,

in

line

with

a

dividend

policy

of

paying

out

minimum

50%

of

the

adjusted

results.

In

addition,

NORDEN

will

initiate

a

new

share

buyback

program

of

up

to

$30 million.

Since

2018,

NORDEN

has

returned

more

than

$260

million

to

shareholders.

For

2022,

we

expect

another

great

result

with

profit

for

the

year

in

the

range

of

$210

million

to

$280

million.

At

this

point,

we

will

move

to

our

Q&A

session

and

open

up

for

any

questions

you

may

have.

Operator,

please

open

up

for

questions.

Operator

Thank

you.

[Operator Instructions]



Our

first

question

comes

from

[ph]



Magnus

Jarman

(00:14:51) with

SEB.

Please

go

ahead.

U

Hi,

guys,

and

thanks

for

taking

my

question.

Even

though

the

focus

might

be

a

little

wrong

these

days,

I

do

have

some

questions

on

the

conflict

or

the

war

of

Ukraine

and

how

it

may

affect

your

business.

Especially

in

terms

of

timing

and

we

know

that

the

grain

season

starts

in

August,

mostly

and

do

you

see

that

the

impact

on

dry

bulk

is

worsening

as

this

drags

out in

time,

or

how

do

you

see

that

this

this

will

evolve

if

it

lasts?

J
Jan Rindbo
Chief Executive Officer, D/S Norden A/S

Thank

you,

Magnus,

for

a

great

question.

I

think

with

the

very

fluid

situation

we're

seeing at

the

moment,

then

a

lot

of

questions

are

arising

on

these

topics.

I

think,

first

of

all,

when

we

have

disruptions

to

trade

flows,

then

generally

speaking,

that

leads

to

more

inefficiencies

and

we

are already

operating

with

the

world

fleet

that

is

facing

bottlenecks

around

the

world.

So,

this

will

further

add

to

that

pressure.

The

question

here

really

is

that

will

–

if

you

plan

to

replace

the

Ukrainian

and

Russian

grain

exports

with

exports

from

other

regions,

then

we

will

see

longer

tonne

mile

demand.

The

big

question

here,

of

course,

is

to

what

extent

will

other

countries

be

able

to

replace

the

volumes

that

we

may

or

may

not

see

out

of

the

Black

Sea?

And

that

is,

of

course,

the

key

question,

and

I

think

difficult

to

answer

today.

But

at

least,

for

now,

we

are

already

seeing

ships

being

directed

to

other

regions.

We

have

seen

a

very

muted,

I

would

say,

reaction

in

dry

cargo

rates

to

the

whole

conflict.

So,

despite

the

fact

that

we

are

right

now

not

loading

any

ships

out

of

that

region,

we

have

not

actually

seen

a

huge

decline

in

freight

rates.

So,

I

think

it's

fair to

say

that

the

world

trade

is

still

finding

its

feet

in

this

uncertain

situation.

And

I

guess

it

remains

to

be

seen

whether

Australia,

North

America

and

South

America

can

step

up

and

replace

the

volumes

that

we're

not

seeing

out

of

the

Black

Sea.

There

may

be

some

seasonal

volatility

that

we

will

see.

But

again,

I

think

in

our

business

model,

where

we

are

able

to

quickly

respond

to

changes

in

trade

flows

that

actually

we

are

well-placed

to

catch

up

the

volatility

that

follow

these

changes.

U

Okay.

Thanks

lot.

If

it's

okay, I

have

one

more

question

which

goes

to

the

implementation

of

EEXI

and

CII,

which

is

kick

in

to

–

for

next

year.

And

how

much

do

you

think

that

you

have

to

reduce

the

speed?

And

how

do

you

think

the

fleet

will

have

to

reduce

speed?

Do

you

see

a

lot

of

like

capacity

being

taken

off

of

the

market

as

a

result

of

lower

speed

in

2023

and

2024

and

on?

J
Jan Rindbo
Chief Executive Officer, D/S Norden A/S

Yeah.

That's

a

good

question,

because

clearly there

are

and

again,

a lot

of

uncertainty

is

exactly

how

the

world

will

deal

with

the

new

regulations.

From

our

own

analysis,

when

we

look

at this,

we

don't

expect

major

changes.

What

we –

we

may

see

ships

slowing

down.

But

of

course

we're

also

now

seeing

very,

very

high

bunker

prices

as

a

result

of

the

conflict.

So,

that

may

actually

happen

already

ahead

of

some

of

these

–

of

the

environmental

regulations

that

are

coming

in.

But

the

easiest

way

to

deal

with

evictions

in

the

world

fleet

in

the

short-term

is

the

lower

speeds

which

will

take

out

the

tonnage.

But

our

own

assessment

is

in

the

first

round,

that

the

new

regulations

have

relatively

little

impact,

but

we

should

expect

that

the

– we

should

expect

to

see

more and

more

regulations

coming,

and

I

think

the

response

in

the

short

to

medium

term

for

that

would

be

slower

speeds.

U

I

see.

I

got

it.

And

just

the

final

one

and

given

that

your

numbers

that

you

delivered

today

that

the

amount

is

probably

not

very

significant,

but

you

disclosed

a

week

ago

or

so

that

you're

investing

in

some

logistics.

And

if

you

could

give

us

some

more

color

on

that

and

how

you

expect

revenue

streams

to

come

from

those

investments

and

how

you

– how

you

look

at

those

investments

going

forward.

M
Martin Badsted
Chief Financial Officer, D/S Norden A/S

Yes.

So

the

[indiscernible]



(00:20:41)

project

is

–

we

find

to

be

a

very

interesting

one

where

we

are

engaging

with

an

outstanding

client

of

Norden

to

help them

actually

optimize

their

supply

chain,

including

the

onshore

handling

of

the

cargo

that

is

being

exported

there.

So

we

have

made

our

first

shipment

down

there,

which

was

a

first

trial

shipment.

The

investments

we

are

making

down

there,

sort

of

mainly

in

the

barges

that

are

needed

to

handle

this

import

or

close

to

port

transshipment

activities.

So

in

the

big

scheme

of

things,

it's

not

a

big

investment

for

Norden,

but

it

is

something

where

we

gradually

hope

to

be

able

to

build

a

pipeline

of

projects

that

will

sort

of

increasingly

become

more

significant

and

of

course,

also

more

profitable

over

time.

U

I

understand.

Thanks

a

lot

for

taking

my

questions.

And

congratulations

on

a

great

year.

J
Jan Rindbo
Chief Executive Officer, D/S Norden A/S

Thank

you,

[ph]



Magnus

(00:21:45).

M
Martin Badsted
Chief Financial Officer, D/S Norden A/S

Yeah.

Thank

you,

[ph]



Magnus

(00:21:46).

[Operator Instructions]

Operator

At

this

time,

we

have

no

further

questions.

I

will

now

hand

back

to

the

speakers

for

final

remarks.

J
Jan Rindbo
Chief Executive Officer, D/S Norden A/S

Thank

you.

And

this

concludes

our

presentation

of

the

full

year

results

for

2021.

Thank

you

very

much

for

your

interest

in

NORDEN

and

for

dialing

in.

Thank

you

and

have

a

good

day.