Klaveness Combination Carriers ASA

OSE:KCC

Earnings Call Transcript 2023-Q1

[Engebret Dahm, executive]

Good morning, everyone, and welcome to the first quarter results presentation of Klaveness Combination Carriers. My name is Engebret Dahm. I'm the CEO of the company. And together with me, I have Liv Dyrnes, the CFO. As normal, please use the webcast solution to write your questions, and we'll go through it after the presentation.

So the first quarter was a spectacular quarter for KCC but quite a mixed market backdrop. Both the dry bulk market and the product tanker market fell down quite substantially during January, but the product tankers picked up to very high levels again during February, March while the dry bulk market had a deeper and longer downturn than normal.

For the TCE earnings for the -- for KCC, we ended at a new record of $38,700 per day, which is around $4,000 higher than the midpoint of our guiding for the quarter. This corresponds to 3.8x the dry bulk spot earnings and 0.9x the product tankers.

The higher earnings of both the CABUs and the CLEANBUs, in combination with lower OpEx, led to a 46% increase in EBITDA, ending at $41 million, which corresponds to 21% return of capital employed. Based on the strong earnings, the Board decided to increase the dividend by $0.10 to $0.40 per share.

Looking at the market, we had also, in this quarter, positive value from our diversified earnings base being both in the dry bulk and tanker market and having a positive effect of higher fuel prices. Looking on the dry bulk earnings. We had the seasonal downturn in the first quarter, was deeper and took longer time to recover than normal. Spot market earnings after recovery in March is currently around $12,500 per day for Kamsarmax, which is not too inspiring. The product tanker market, on the other hand, also fell back in early January but bounced back in end of January and has kept up at very high levels through February and March. The fuel prices have trended down, but still are at pretty good levels.

So taking first a look on the dry bulk market. There has been a positive demand growth. This is the tonne -- deadweight tonne mile growth, which ended positive in the first quarter. But the large effective supply growth in the quarter more than offset this positive effect on the demand side. So while a nominal supply growth was only 2.8%, the fact of an increasing -- I mean lower congestion and lower speeds of the fleet made the effective growth in the dry bulk market, up to 6%. And this balance between dry and -- supply and demand explains the weakening of the market.

The market is, at the current levels, pretty balanced, and it takes quite little to move the market up, and we believe that the prospects of stronger Chinese growth could tighten the market considerably over the coming quarters. The graph to the right shows the -- in the blue is the trade-weighted Purchasing Managers' Index on a global basis, showing the flattening out towards the end of last year and getting up to around 50, which is the inflection point between expansion and contraction. In China, we see rather mixed economic signals. We see that this week, the PMI ended lower than expected. The manufacturing activity is also lower than expected but also positive signs, both on the credit growth and house prices, which should, from experts, lead to increasing investments and increasing demand coming into the year.

So in totality, we believe that the effective fleet growth for the second half will turn around being lower due to the potential of increased efficiency in the market being -- having peaked and, in combination with increased demand, should tighten the market into the second half.

On the tanker side, the demand for and supply of oil is back from before the pre-COVID levels and, based on the recent estimates from EIA, will improve further into the second half of the year. Also, the inventories are at the lower-than-historical average. But the main reason for the stronger market is the higher tonne mile development, which has been very strong, given the replacement of Russian oil into Europe. And based on the latest forecast of Clarksons, we see an estimate of 11 percentage growth in tonne mile in the product tanker market in this year and a further 7% increase in tonne mile for next year. I know we have a supply growth of 1% to 2%. This shows the positiveness in the product tanker market for the next year or 2.

Looking at the earnings of our company. We have, over time, delivered time charter earnings well above the spot market in the dry bulk and the product tankers. We see the product tankers in black and the dry bulk in light blue compared to our earnings and economies. So over the last 5 years, the average premium for the -- compared to the dry bulk and product tanker market been 1.4. 2022, we ended at an earnings so close to $30,000 per day, more or less matching the product tanker market but being 1.4x stronger than the dry market. In first quarter 2023, average earnings of $38,700 per day was 3.8x the dry bulk market and 0.9x the booming product tanker market.

Looking on the CABUs, we note that the first quarter, we have a slightly higher dry bulk trading in the quarter due to seasonally low caustic soda shipments in the start of the year, which has later improved substantially into the second quarter. This resulted in a very strong trading efficiency of the CABUs, ending at 95% in combination trade and with a ballast of only 11%.

The -- having more than 50% of the capacity in the dry bulk market explains why the CABU earnings was hit by the weak dry market. Here we see the earnings -- time charter earnings per day of the CABU fleet in the dry market compared to the average Panamax spot earnings in the dotted line and the Pacific spot earnings in the blue line. And given that our CABUs are trading only in the Pacific, the blue line is the best benchmark for the dry earnings of our CABUs. So we see that from fourth quarter to the first quarter, the average spot earnings more or less halved, and also our dry earnings in the quarter fell back slightly less but from $17,900 to $9,700 per day. This was also impacted by the fact that our older units are struggling a little bit more in a very low dry market to find employment. So looking ahead, we see the recovery in the dry market, both in the Pacific and in the average global market, is positive for the second quarter, which, of course, explains the upside potential for the CABU earnings.

So looking at the earnings for the quarter, we ended at $31,466 per day, which is driven by strong earnings for the caustic soda contracts and despite the weak dry bulk earnings. This is 3.3x the Panamax spot earnings and 0.8x the MR product tankers spot earnings.

Looking -- going over to the CLEANBUs, we see that we had an extremely high tanker trading in the first quarter, ending at 91%. This is a result of partly that we added an extra tanker voyage into triangulation trade. We replaced dry cargoes with shipments of vegetable oils out of South America. And we also employed some ships as a tanker vessel to benefit from the booming market in late 2022 and early 2023. This resulted in lower share in combination trading and also having an effect of higher ballast percentage.

But as we explained before, the variations between the quarters are due -- in terms of tanker trading, is an effect of the geographical positions of our ships. Then in some quarters, we have more ships that are in the regions where they load tanker cargoes and which implies that the next quarter will have more loadings of dry cargoes and more days in dry. So meaning that as we saw in the second half, after very high share of tanker trading in the third quarter, we ended quite lower in terms of the tanker trading in the fourth quarter. And after the spectacular high tanker trading in the first quarter, we also get a lower percentage in tanker trade in the second quarter.

But as you see, we have succeeded if we look on a half year-by-half year basis to increase considerably the share of the tanker trading over the last year. And this -- the fact of the lower tanker trading for the second quarter, we'll have, all other things equal, a negative effect on the earnings of the CLEANBUs in the quarter given the large differences in earnings between the tanker market and the dry market at the moment.

Looking on the results for the CLEANBUs. It's ended at $45,900 per day, which is the highest ever. It's $9,000 higher than the fourth quarter and around $900 higher than the last record in the third quarter. This is as much as 4x higher than the Kamsarmax spot earnings and -- but pretty close to the LR1 spot earnings in a booming tanker market.

So Liv?

[Liv Dyrnes, executive]

Thank you, Engebret. Over to the financial update. As mentioned, the EBITDA for the quarter ended at $41 million, a record high quarter and a 46% increase from last quarter. This is driven by the very strong underlying earnings for both segments. As you saw from the previous graphs that Engebret showed, the TC earnings for the CABU vessels increased by approximately $5,700 per day from last quarter and the CLEANBU TC earnings by approximately $9,100 per day. In total, this amounts to approximately $10.5 million Q-on-Q. Operating expenses down $2.2 million. I'll give you some more details on the next slide. And SG&A increased by $400,000. 50% of SG&A or the increase relates to option declarations in Q1.

Over to operating expenses, as mentioned, down $2.2 million from last quarter. As you can see here, the CABU OpEx per day ended at $7,128 and the CLEANBU OpEx per day at $8,648. We have, over the last years, seen a trend where OpEx is higher towards the end of the year, and we do expect the same trend this year.

We saw limited unscheduled off-hire for the quarter, 10 days, which is a substantial improvement from the last quarters. And this is mainly related to some minor operational issues. We have 7 vessels scheduled for dry docking for the remaining 3 quarters of the year. And you can see more details on both off-hire and costs on Slide 33.

Over to the full P&L for the quarter and the items below EBITDA. Depreciation ended at $8.5 million. That's down 7% Q-on-Q, and it's mainly related to the date of the dockings. On an annualized basis, I think Q1 is quite representative for the year. Net financial cost, $4.2 million, an increase of 15% Q-on-Q, which mainly relates to a positive FX effect in Q4 last year. Hence, a record strong profit for the quarter of $28.2 million, an increase of 84% from last quarter.

This, of course, then also results in very strong return figures for the year -- for the quarter, sorry. Return on capital employed on an annualized basis, 21% and return on equity on an annualized basis, 37%. Dividends, as mentioned, up $0.10 per share, 33% and to $0.40 per share based on an exceptionally strong quarter.

No major or unusual changes in the balance sheet from year-end 2022. Total assets increased by $8 million while equity increased by $9.5 million. In addition to the profit for the quarter, the equity is impacted by negative other comprehensive income of approximately $3 million. That mainly relates to market-to-market on interest rate swaps and cross-currency interest rate swaps. In addition, we paid $15.7 million in dividends in Q1 and hence, the equity -- or the net equity effect is $9.5 million. These results then increased or strengthened equity ratio of approximately 1 percentage points during the quarter and ended Q1 at 47%. So we have built both solidity and liquidity through the quarter.

Cash and cash equivalents increased approximately $14.5 million, and available liquidity increased approximately or close to $13 million during the quarter. The very strong operational cash flow is, of course, one of the main drivers behind this increase. However, we had limited working capital effects during the quarter. CapEx relates mainly to prepaid investments in energy efficiency measures coming later this year. Debt service as -- approximately as last quarter is close to $10 million. And then, of course, dividend payments, as mentioned, $15.7 million.

The last item in the financial update is an update on the refinancing of the maturity falling due in December this year. We have now received credit approval for both this bank facility and another bank facility falling due in October 2025. The new facility will be up to $190 million or 65% loan-to-value, which means an upsizing of approximately $35 million. It's 50-50 revolving credit facility and term loan, with a repayment profile on an age-adjusted basis of approximately or close to 18 years. Tenor, 5 years. Pricing SOFR, plus 2.1%, which is a reduction in the margin of approximately 45 basis points comparing with the existing facilities and comparing apples and apples, which means on SOFR basis.

This is subject to documentation. But based on this, we have limited refinancing risk over the next years, and the first debt falling due is the bond loan in February 2025.

Then Engebret over to you again for the sustainability.

[Engebret Dahm, executive]

Thank you, Liv. So based on the high efficiency of our combination carriers, unique combination carriers, we deliver the lowest carbon footprint to our customers in the dry bulk and tanker space. And back in 2018 and '19, we started working to see how can we improve this further, how can we move faster than our competitors to increase further our competitive advantage. And this resulted in the first environmental strategy we presented back in January 2020.

And since then, we have learned a lot over the 3 years that has passed. We have had great success with implementation of energy and voyage efficiency measures. We -- our biggest learning maybe that everything takes a longer time than expected. It takes longer time to get effective international regulations, longer time to get customer support. And just to implement some of the measures that we are doing takes -- has a longer lead time than we expect.

So we presented, in 29th of March, a revised strategy where we try to build on what we have learned over the last 3 years and see how can we move forward, continue to produce the carbon footprint of our business and offer our customers the lowest-cost carbon reductions and also our shareholders the highest profitability in terms of benefiting from this development. So based on this strategy, we are focusing over the next 3, 4 years on implementing improvement in energy efficiency of our fleet and also adding further improvements in the voyage efficiency and also the trading efficiency our fleet.

In totality, the -- we have a target of reaching a 30% lower carbon intensity in 2026 compared to 2018. But in this period, we'll use very limited new fuels that we will be more on the agenda for the subsequent 4 years, where we will, firstly, have -- expect to have post effects from a fleet renewal, planned fleet renewal of our CABU fleet, and also continued energy efficiency investments. But to get to the transition to new fuels, we need backing from both more effective international regulations, and we also need support from our customers. Based on fairly conservative assumptions on use of biofuel and zero-emission fuels, we expect to reach 45% lower carbon intensity by 2030 compared to 2018.

Looking at the start of the year, it's been not particularly impressive, but we had a higher speed in the first quarter led to higher CO2 emission on average for the fleet. The higher tanker trading, when increased the ballasting, led also to a small increase in carbon intensity for the fleet. But we expect to improve this considerably over the year as the trading will be more normal, and we also get benefits of all the ongoing work with energy efficiency initiatives.

Looking ahead, we know that despite continued high geopolitical and macroeconomic risks, we are optimistic both on the tanker and dry bulk market and a few markets for the remaining part of this year. And this graph shows the quarterly spot earnings of product tankers in black, the dry bulk market in blue and the fuel prices in gray. And the dotted line shows how the forward derivative markets are pricing these for the next quarters.

What we know is that the forward derivative markets very seldom get it right. And in our opinion, the markets are underestimating the potential we see in the market for the coming quarters. And if you are right, we may end up in the second half of this year with 3 strong markets, which we are deriving our earnings from: a strong product tanker market, a strong dry market and increasing fuel prices.

We have positioned our fleet and our contracts based on this market view. We have -- for the second quarter, we are more or less fully booked, taking into account the index-linked contracts we have, both in the dry bulk and tanker space. For the second half, we have, in the tanker space, a high percentage fixed rate coverage for our CABUs in the caustic soda contracts, around 60% of the capacity for the second half. And we have one of the CLEANBUs fixed on a 2-year charter that is adding further fixed rate coverage. So in totality, for the tanker part of our capacity, we are at 37% coverage for the second half. Based on our optimism of the dry bulk market, we have decided to keep the coverage for the second half for the dry bulk market low. Only 7% of the capacity is covered, making -- we are positioned to get the full market upside of an upturn in the dry bulk market.

So looking at the second quarter, it will be another strong quarter for KCC, backed by the strong earnings of our caustic soda contracts and improving dry market. The earnings for the CABUs are estimated to increase by $2,500 to $3,500 per day to $34,000 to $35,000 per day. The CLEANBUs will also benefit from a stronger dry market, but the fact of lower tanker trading and the continued large differences between dry bulk and tanker earnings reduce the earnings for the CLEANBUs down to $31,500 to $33,500 per day.

Seen on the totality, the second quarter still ends up at the second and possibly -- the third or possibly the second highest earnings in our company's history, somewhere between $32,700 and $34,200 per day, which is very strong. So looking further ahead, we know that after a low tanker trading for the CLEANBUs in the second quarter, we end up with higher tanker trading in the third quarter. So with our estimates on -- or expectations on market development, the third quarter and fourth quarter looks pretty good for the company.

So I'd normally end underlining that the value proposition to our shareholders and other stakeholders is quite unique. We offer the lowest carbon emission transportation solution in the dry bulk and tanker space. And as we normally like to say, we believe that advantage will be more and more important going forward. Due to the diversification of our earnings base, we have a lower earnings volatility, and our efficiency has, over time, and we'll do our best to repeat that, outperforming the standard dry bulk and tanker earnings in the future.

So that ends our presentation, and we are ready for questions.

[Unknown Executive]

Yes. Thank you very much, Engebret. We do have a few questions actually. But just before we start, I just want to acknowledge that a few people out there had issues with the stream not automatically starting for them. So they had to refresh the page a few times. So we just want to apologize for anyone that experience that. And the recording will be on our website very shortly after we're done, and we'll also send it around as an e-mail in case you missed anything at the start.

So question one, why do you take down tanker exposure for CLEANBU in Q2 with the expectation to increase it in Q3? Seems like a shift away from the most profitable markets.

[Engebret Dahm, executive]

I think it is a reflection of the way we trade our ships, meaning that in the first quarter, the tanker market was extremely high in December and early January. At that time, it was a no-brainer despite we use our shadow carbon pricing into our chartering decisions. There were no way we could defend continuing trading dry bulk in certain trades, ending up at the ballasting and increasing the share in the tanker market.

For the remaining quarters, if we look on more than 1 quarter isolated, it makes sense, earnings-wise, to increase the combination trading. And by just by this normal different variations in asset positions, we end up that this trading has a lower share in tanker trading in the second quarter. So it is -- we expect to maintain a very high percentage of what's seen over more than 1 quarter based on 2 quarters, but it will vary from quarter-to-quarter. So meaning that we are not reducing the tank exposure from 91% to 55%. It's so dramatic. It's more that if we look on this first half as a totality, you see that we actually increased from the second half of 2022 to the first half of 2023.

[Unknown Executive]

How should we think about dividends going forward? Will you allow the DPS vary from quarter-to-quarter? Or should we now expect 40% to be kept in the next quarters?

[Engebret Dahm, executive]

We have the policy as we have communicated that 80% of the free cash flow is paid as dividends. And we have tried to smoothen out a little bit from quarter-to-quarter. And that means that -- but still, our dividend depends on our earnings and how the market is moving. And but again, if we assume the market development that we have been through in this presentation with a stronger dry market and the continued high product tanker market, we expect to be able to continue with a high dividend payment over the next quarters. But again, clearly, it depends on that we can deliver the earnings that we are forecasting and are expecting for the coming quarters.

[Unknown Executive]

Can you explain the rationale for a lower share of tank days for CLEANBUs in Q2 but up again in Q3? Compared to the tanker [ vessels' ] bulker market development, it seems counterintuitive as a strategic decision.

[Engebret Dahm, executive]

As I mentioned, it is a part of our concept. We trade in these ships to get the best value creation of our ships. We do a combination of dry bulk and tanker trading. That's how we can deliver the highest earnings over time. But we have a possibility, especially when it comes to the CLEANBUs to tweak the tanker capacity, as mentioned, by increasing slightly the capacity of -- in the tanker space by increased triangulation trading. We replaced dry bulk shipments with vegetable oils.

But looking now and as the market has developed with a somewhat weaker tanker market in -- now compared to the end of last year, it makes sense to take dry bulk in the trades from South America back to Middle East and India. It actually pays more. And likewise, it is -- this effectiveness of our operation will deliver higher earnings seen [ of ] more than a quarter. And we are in the business of running our business or the outlook of more than 1 quarter at the time.

So basically, it is optimal for our business to reduce the tanker trading in the second quarter because it is a part of our concept of combination trading. And it will -- due to the position of the ships, it will increase again in the third quarter.

[Unknown Executive]

The same person was also asking about dividends if we're targeting a consistent dividend based on the latest level or subject to quarter-to-quarter fluctuations in case you wanted to expand on the idea.

[Engebret Dahm, executive]

No, I think we are saying that we believe that our concept of a lower volatility in earnings shall mean that we should be able to deliver a more stable dividend flow than standard dry bulk and tanker companies. But again, we are dependent on the market and our performance. So yes, we have shown a constant upturn in dividends over the last years. And we'll do what we can to keep it up that way, but it is dependent on the performance and the market.

[Unknown Executive]

And I have 3 people asking about the fleet, so I'll try to bake them into 1 question, very similar. So they're asking if you can talk a little bit about the future of the fleet in terms of renewal and timing of potential orders, commenting that some of the vessels are getting a little bit older now and what delivery times might be possible today for vessels if you expand.

[Engebret Dahm, executive]

And we have -- I think we have communicated before that our CABUs, which are -- we have 3 ships that are now more than 20 years old that we, at some stage, will renew these ships, replace them with newbuilds. And that is -- we have an acceptance from our customers to operate these ships until they are 25 years old, meaning that they will trade until 2026, 2027. And our CLEANBUs are constructed to be able to replace the CABU trade if need be.

So our job as a management is to find the right time to replace it because this is a hugely profitable business, as we have shown over time. And if you look at how it looks at the moment, if we went out in the newbuilding market today, we would secure delivery in 2026. Maybe the last part of the delivery would be in 2027.

[Unknown Executive]

There's also a question asking if you could elaborate more on the freight contracts with earnings linked to emissions performance with South32, asking if you can shed any light on the difference in earnings between best and wise performance.

[Engebret Dahm, executive]

That was a bit difficult the last part of it. Again, just to remind everyone, that the South32 contract is a 6-year contract starting up in early 2022. So during last year, we worked together with our customers to develop a mechanism, whereby the -- our earnings under contract is linked to the emission performance relative to baseline, and the baseline is basically our historical performance in the trades. And then from 1st of January this year, we have implemented this mechanism, and this mechanism is linked to a carbon pricing, which is we find to be acceptable compared to how the carbon is priced in the market today.

The effect of earnings, it's a bit difficult to say by precisely. It is -- in the first quarter, we have, in fact, a slightly negative effect and -- but as we go further and we succeed with the implementation of these energy efficiency initiatives and voyage efficiency initiatives, I think we are talking about probably a couple of thousand dollars per day. It's not dramatic with the current carbon pricing, but it's something that definitely would support the efforts we do when it comes to implementing energy efficiency measures.

[Unknown Executive]

And then a question asking, what does shadow carbon pricing mean for your potential to maximize earnings?

[Engebret Dahm, executive]

The shadow carbon pricing is used in where we are seeing it's difficult to defend the combination trade meaning that we will include a carbon pricing equal to the emission -- the carbon pricing in the EU, which at the moment is around $100 per tonne CO2. And that will be added to the cost -- the earnings -- deducted earnings of the alternative with the longest ballast. The impact in reality with the current pricing is that we will actually accept slightly lower earnings to maintain the combination trading, which secures the lowest carbon emission. But based on what we have done to date with the implementation of this shadow pricing, we have not had any voyage where this carbon pricing has been sufficient to trigger a different chartering decision than we otherwise would have done without the carbon pricing.

So up to today, it has had no effect in terms of earnings. But potentially, it could have an effect of $1,000 to $2,000 per day, I guess, in terms of difference between what is, earnings-wise, the optimal and what is optimal with respect to a carbon emission performance. And we feel that is consistent with our strategy, and we think it's the right way to move forward.

[Unknown Executive]

Yes. If current tanker and dry bulk earnings remain at current levels throughout 2023, would it be reasonable to expect the share of tanker days for CLEANBUs to increase in the second half of '23 versus the first half?

[Engebret Dahm, executive]

As we said, we ended up in the first half based on our estimates for the second quarter at something like 65%, if I recall it correctly, in tanker trade. And I think that it is -- if the market is as it looks at the moment, the third quarter will likely be something like 70%, 75% in the tanker trading. And then the fourth quarter will be subsequently lower. So meaning that we will maintain the current market overweight in the tanker trading in the second half. Whether it would be as high as it was in the first half, it's difficult to say. But unless the market goes really more extreme than we've ever seen, I don't expect that to be much higher than what we have seen in the first half.

[Unknown Executive]

And then more questions on the fleet. So I'll put this as a 2-parter. We are asked, since the CLEANBU vessels offer more flexibility regarding cargo, is that the kind of vessels that you'll be ordering? And someone also asking if you can say anything about pricing for newbuilds today.

[Engebret Dahm, executive]

I think the CLEANBUs, as the question indicates, are more flexible ships. They are full-fledged LR1 tankers. They can take more or less any liquid cargo and any dry bulk cargoes, while the CABUs are more restricted in their trades, mainly taking caustic soda as the tanker cargo. But in -- the CLEANBUs are also quite a bit more expensive assets. I would expect that the difference between a CLEANBU and a CABU today would probably be something at least $10 million, $15 million difference. And also the OpEx of the CLEANBUs are higher. So meaning that in our trades to Australia, it is clearly beneficial for us to continue using majority of CABUs in the trade, meaning that with the age profile of our fleet, we expect that the next step of fleet renewal will be CABUs.

But at the same time, there is clearly a potential to increase the CLEANBU trading. We are seeing that we are -- now we have fixed out 1 ship on a 2-year charter. We are basically fully booked in the trades where we trade. And we would have liked to expand with the new customers, and that is limited with the capacity we have. So clearly have potential to expand the CLEANBU fleet. And hopefully, we can succeed with that. But as I said, the first step is the CABUs.

When it comes to the pricing, it is clearly that when it comes to the CABUs, the CABUs are based -- the CABU pricing will be based on the dry market -- sorry, the pricing for a Kamsarmax dry bulk, and then there will be an additional pricing on the top of the Kamsarmax prices. And the Kamsarmaxes has reduced from closer to $38 million last autumn, down now to somewhere between $34 million and $35 million per day. So mean that it has had a better development than what we have seen in the tanker space where prices have continued to rise consistently over the last 2 years.

So there is -- so if you look on a CABU today, I would expect that the pricing probably would be closer to around $50 million per day, dependent on what we do on energy efficiency initiatives and preparations for zero-emission fuels.

[Unknown Executive]

And then it looks like the last question. Are you experiencing any change in interest and trade routes following the EU's carbon pricing regime coming into play from next year?

[Engebret Dahm, executive]

We have not really at the moment. I think it is -- as the question indicates that it is a benefit for us with implementation of the EU ETS system into shipping from 1st of January 2024. But at the same time, we have a bit more unpredictable trading in the north of Europe after the replacement of Russian oil imports and also that [ we recall ] interruptions in grain shipments out of the Black Sea. So making that for us, we have, at the moment, decided to reduce our exposure to Europe given this trading uncertainty. But over time, we definitely believe that the trade we had established up to -- in 2022 and has -- will be a good potential and which will be strengthened by the EU ETS system.

[Unknown Executive]

Yes. That's it. Thank you.

[Engebret Dahm, executive]

Thank you all for joining, and we look forward to delivering what we have promised.