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spk04: Greetings. Welcome to Bruges Energy Limited Financial Results Conference call for the first half of 2020. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. Please note this conference is being recorded. At this time, I'll hand the conference over to Walter Pinto, Managing Director of KCSA Strategic Communications.
spk01: Please go ahead. Thank you, Operator, and good morning. Welcome to the Bruges Energy Financial Results Conference Call for the six months ended June 30th, 2020. On today's call will be Nico Parton-Cooper, Chief Executive Officer, and Sayeed Masood, Chief Financial Officer. We'd like to remind everyone that this conference call contains certain forward-looking statements, all statements that address our operating performance, events, or developments that we expect or anticipate occurring in the future are forward-looking statements. These forward-looking statements are based on management's beliefs and assumptions and are not on the information currently available to our management team. Our management team believes these forward-looking statements are reasonable as and when made. However, you should not place any undue reliance on any such forward-looking statements because such statements speak only as of the date when made. We do not undertake any obligation to publicly update or revise any forward-looking statements, either as a result of new information, future events, or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results, events, and developments to differ materially from our historical experiences or our present expectations or projections. These risks and uncertainties include but are not limited to those described in risk factors and elsewhere in our annual report on Form 20F filed with the Securities and Exchange Commission and those described from time to time in other reports which we file with the SEC. I'd now like to turn the call over to Mr. Nico Harden-Cooper, Chief Executive Officer of Bruges Energy. Nico, the floor is yours.
spk02: Very many thanks, Walter, for the introduction, and thank you everyone who has joined us on the call today. While 2020 has brought with it many challenges and much volatility across the world, we are very pleased with the progress we have made at Bruges, which has continued throughout the year despite exceptional market conditions. Our Phase 1 facility continues to operate at full capacity, and we are poised to generate significant growth going forward, especially with our Phase 2 facility coming online. In parallel, we are progressing with our Phase 3 plans, having commenced pre-construction work, as earlier this month was mentioned, in a separate press release. The events of 2020 and the impact they have had on the oil market have made the strategic value of oil storage as a tool to minimize vulnerability and disruption more evident than ever. Storage terminals around the world are filling up and approaching critical levels in the US, Europe and the Middle East, Asia and Africa. We are especially seeing rising demand for all storage from countries such as India, as well as parts of Africa, where they have limited domestic options. Our terminals in the Middle East, they serve as key global trade routes across Asia, Europe and even South America. and they are strategically positioned to provide much-needed storage to oil traders. Our storage terminals are built using modern technology and bring a variety of benefits to both of us and our end users. All the oil storage tanks are convertible and can be cleaned and converted to service other oil products, while white oil, including white oil, which is much more lucrative, Not all storage facilities have this built-in functionality, which is becoming increasingly important for the end users. And by building our tanks through these advanced specs, we are positioning ourselves to secure the most lucrative contracts and maximize profitability. Moreover, our ability to provide ensuring services, which includes throughput services, blending, heating, and inter-tank transfers, enables us to provide a greater range of value-added services beyond simply storage. at a time when industry requirements are changing and oil companies are focused on maximizing income. As a reminder, we don't own any of the oil that we store and therefore we don't take any of your oil price exposure. Our phase one terminal runs at 100% capacity, even when there were COVID restrictions in place earlier this year, due to its automated functionality. As a result, we reported stable revenue of $23 million for the first half of 2020, compared with $22 million in the first half of 2019. And series services, which contributed 47% of revenue in the first half of 2020, compared with 46% of revenues in 2019. We believe we are in an incredible strong position to achieve strong growth over the next several years. serving as an essential link in the oil industry value chain by supporting the infrastructure and storage needs of the industry and enabling the markets to work efficiently. This is a critical function that we anticipate being increasingly in demand over the next several years. Our business model provides for strong revenue visibility as we sign multi-year contracts that ensure guaranteed income regardless of the vagaries of the oil market. As mentioned, we are in the final stages of constructing our Phase 2 facility. This is being built to the same award-winning specs as our Phase 1 facility, and that will expand our storage capabilities to now also include crude oil, as well as adding more capacity for fuel and clean petroleum products. As 100% of our Phase 2 storage facility is already fully contracted, we expect to chart start generating significant revenues from the facility as soon as it is launched. After completion of Phase 2, our storage capacity will be expanded by approximately 600,000 cubic, which in its turn equals to 3.8 million barrels. This increases the overall capacity of DPGI terminals to approximately 1 million cubic, or the equivalent of 6.3 million barrels. By this point, we will be the second largest non-capture storage operator in Fujairah. Simultaneously, we are also working towards launching a modular refinery to produce low-sulfur fuel, which is in high demand in Fujairah and around the world. We are currently entering the final stages of our negotiations for the long-term final agreement with our Phase 1 off-taker, who we are expecting to take on the CAPEX to build the refinery itself. The anticipated launch date for the low-sulfur refinery is in the second half of 2021, which will be operated and maintained by Brugge, with initial capacity of 25,000 barrels a day. Also, we are progressing with our planned Phase 3 facility. Phase 3 facility will bring our total capacity up to 4.5 million cubic stores capacity, which is the equivalent of 28 million barrels. for all kinds of oil products. That will make us the biggest, largest storage supplier in Fujairah. This is a very exciting opportunity, which would transform our growth profile, and we are pleased with the progress we are making. We have completed the basic design and feed study, and we have started the pre-construction work on the facility, which has also been announced in the market in a separate press release, and in this term is a significant development and brings us closer to commencing construction. We expect to have completed the pre-construction work by the end of this year, which is around the corner, and able to start the construction shortly thereafter. Phase three is expected to come online in late 2022, and potentially could be more than three times the size of phase two one and two together. Concurrently, we are also in discussions with top global oil majors, which all have expressed interest in securing portions of the capacity of that phase three facility. Prior to beginning construction, we will ensure that the capacity is fully contracted on a multi-year take-or-pay contract to provide revenue stability and visibility. With that update, I will now turn it over to Mr. Saeed Masood, our CFO. Saeed? Over to you.
spk09: Thank you, Nico. Good morning, everybody. Before I dive into our financial results for the first half of 2020, a quick update on the restatement of our 2019 results, which was announced by Form 6K on November 18th. The company has concluded that the warrants issued in 2019 should have been accounted for as a derivative liability rather than equity. The adjustments required to correct this error have reduced 2019 equity by $15.7 million and increased current liabilities by $15.7 million after taking into account non-cash income of $1.3 million related to changes in the estimated fair value of derivative warrant liability. This restatement had no impact on previously reported EBITDA or cash from operating, financing, or investing activities, nor does this correction affect Boole Energy's underlying business operations. The derivative liability will ultimately be converted into equity when the warrants are exercised or will be extinguished upon the expiry of the outstanding warrants and will not result in the outlay of any cash flow by the group. Now to turn to our financial results for the first half of 2020. Our revenue was relatively flat at $23 million in the first six months of 2020, compared with $22 million in the same period of 2019. Revenue generated from leasing of storage capacity of tanks and ancillary services, such as heating and vending, at our phase 1 operation, which was operating at 100% capacity for both periods. Our ancillary services fee revenue increased to $10.8 million in the first half of 2020, or 47% of total revenue. This compares to $10.1 million, or 46% of total revenue, in the first half of 2019. Fixed leasing revenue from the first half of 2020 was $4.6 million, compared with $8.4 million same period last year. In May 2020, our Phase 1 off-take customer agreed to release 129,000 cbm cubic meter of the Phase 1 capacity, amounting to approximately one-third of the total Phase 1 capacity back to BCGIC. BPGIC leased its capacity to a supermajor for a six-month period, subsequent renewal for an additional six-month period with the mutual agreement of both BPGIC and the supermajor. Revenue from the supermajor does not meet the definition of a lease under IFRS 16. Accordingly, the revenue rate to the period, that period is classified under IFRS 15 as service revenue. Service revenue for the first half of 2020 was $7.6 million compared with $3.6 million in the same period last year. Gross profit was $16.7 million for 2020 or 73% of revenue compared with $17.1 million or 78% of revenue in 2019. General and administrative expenses were $2.7 million in 2020 compared with $1.2 million in 2019. Finance costs were flat at $3.4 million in both periods. Changes in the fair value of derivative financial instruments were a gain of $180,000 compared with the loss of $485,000 on the first half of 2019. The company reported a gain on devaluation of derivative warrant liability of $5.3 million compared with mill in the same period of 2019. Net profit for the first half of 2020 was $16.2 million compared to a profit of $12 million in the first half of 2019. Basic and diluted earnings per share was $0.18 in the first half of 2020, compared with $0.20 in the first half of 2019. The company had cash and cash equivalents of $1.1 million as of June 30, 2020, compared with $20 million as of 31 December 2019. Subsequent to the period end, we complete the issuance of the US dollar 200 million five-year senior secured bond with a borrowing limit of US dollar 250 million in the Nordic bond market. The bond, which will mature in September 2025, provides a flexible financial platform to support our future growth agenda and marks a key milestone for the company in entering the bond market. The additional capital will be used to strengthen our balance sheet by repaying existing bank debt for phase one thereby enabling the company to have a single consolidated debt facility on favorable terms. It will also be used to complete construction of our Phase 2 oil storage facility, which is anticipated to be completed in the coming weeks. With that, I will now ask the operator to open the lines for questions and answers. Thank you.
spk04: Thank you. We'll now be conducting the question and answer session. If you'd like to ask a question today, please press star 1 from your telephone keypad and a confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For person producing speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We'll pause for a moment to call for questions. Thank you. Our first question is from the line of Elvira Escado with RBC. Please proceed with your question.
spk07: Hi. Good morning or good afternoon, everyone. A couple of clarification questions. The first one, I just wanted to clarify, the super major that BPGIC had leased, you know, the storage capacity for six months, did you say that they renewed for another six months?
spk02: We did not. Good afternoon. Good morning, Alvira, Nico. Let me take that question. So there is an option for the supermajor to lift that option, and we have not announced publicly that that has been done as yet.
spk07: Okay. Thank you. And then with respect to the warrants, When I look at the financials that you released in the area that says 2.1, restatement of prior period, comparatives for correction and accounting for warrants, was there any other change to the warrants, or was it just purely an accounting change?
spk02: Sorry, can you please take that question?
spk09: It was purely an accounting change, the change of treatment from
spk07: Okay, thank you. And then in terms of contracting for phase three, how are you thinking about that contracting? Are you thinking about securing contracts with several potential customers just to further, you know, increase your customer diversity? Or are you, you know, could you contract it to just, you know, one or two?
spk02: Elvira, given the size of phase number three, we will have an additional set of customers because it will be up to 3.5 million cubic. So we have the ability to expand our customer base and in itself also having a long-term contract with other parties. As you might know, the company is never building on speculation. We always secure the contract first before we start in the construction.
spk07: Great, thank you. And then just a final question for me. You talked about, you know, in India and Africa, storage filling up. How does Bruges, how can Bruges, you know, play a role in helping there? And, you know, what kind of opportunity do you see?
spk02: Sorry, Elvira, can you repeat the first part of your question? It didn't come very clearly.
spk07: Oh, yes, I'm sorry. In your prepared remarks, you talked about India and Africa and how storage there is filling up. Can you talk a little bit about what kind of opportunity this presents for Bruges?
spk02: There are markets that are currently not being entered into by BPGIC who are looking for the similar advanced technologies and operations that we provide through the markets. So by filling up those stores, existing capacities who doesn't have those additional features as yet, but certainly we will have an ability to expand our businesses into those areas if our market resource will allow us to do so.
spk07: Great. Thank you very much.
spk02: And in addition to that, Odeira, I think the The philosophy of the founding fathers of our company was from day one to establish a global brand by starting in Fujairah and expanding in Fujairah phase number two and phase number three. It still is the intention to expand this and build it to a global brand. In those areas that do matter to clients in the industry that we present. Thank you.
spk04: Our next question is from Ashash Jain with Cure Investment Management. Please receive your question.
spk05: Hi, it's Ashash from CORE here. Quick question on phase two. Precisely, like, is construction complete? When can we expect first revenue to come? And, like, can you just give a more detailed update on where that facility is? Thank you.
spk02: Thank you for your question. So, we know the time of completion of its current configuration. And over in the BOSC, we are now also assessing the technical and financial impact to allow also clean petroleum products in the product mix in that phase number three, in addition to the fuel and crude. So, the completion is foreseen very shortly. And based on the discussion and assessment that we have, we will announce the market if we also introduce clean petroleum products in phase number two.
spk05: Just roughly, can you guide us to a next year thing, a Q1 next year? When will you start recognizing revenue, do you think?
spk02: Like I said, we know the time of completion, which is indeed early next year in its current configuration, which is fuel and crude. And we are now assessing also the technical and financial impact to allow clean petroleum products over and above into the fuel oil and crude, which is currently able. This is the current configuration of phase number two.
spk05: Understood. And just to get a sense, is that kind of a one-month delay at PMAF?
spk02: It's too premature to comment on that because we are waiting for the results of our EPC contractor plus the assessment on that from our product management consultant, a specialist company called MUSC.
spk05: Understood. Okay. And one more for me as well. Could you just help shed some light on the change in Auditor that you guys just underwent Was this at all related to the mistake around the warrants accounting, or was there something else that we should be aware of?
spk02: Saeed, can you answer that question?
spk09: It's just the change of the treatment that management has identified and then agreed by both auditors, the previous and the current auditors, and there is no other change going on or no other thing that needs to be highlighted here. only changes the reclassification of warrants from equity to liability.
spk05: Understood. And the change of auditor, you know, could you shed some light on the reasoning for that change?
spk09: Change of auditor is, you know, we have EY, like our previous auditors, were there for the last three to four years with us. And after the listing in the last year with the NASDAQ, We followed the procedure like, you know, we had distributed the RFPs to the big four, and then we received the interest from our current auditor, and we finalized with them. So it was a normal routine process of having a more, you know, that more practice which is in line with the market of circulation, either the lead partner or the auditor that we periodically, you know, three to four years or five years.
spk05: Understood. Okay, thank you. No further questions.
spk04: Our next question is from the line of DI Aurora with Diamond Investments. Please proceed with your questions.
spk03: Hi, this is Divya from Diamond Investments. Thank you for the call. My first question is linked to your margins in general. Would you be able to give us the breakdown of your EBITDA margins by segments? How much of it is attributable to the leasing and how much of it is attributable to the services?
spk09: No, we cannot distinguish the margins because many services are interrelated here. One service is depending on the other services, so we cannot just segregate the margins from the ancillary of various services or even from the fixed to ancillary. We cannot have this distinction here.
spk03: But is there sort of a sense that let's say the margins of storage would be around 50 to 60%, services would be on the higher side around 80 to 90%? No, no.
spk09: As I told, it's interrelated and then the expenses are shared so we cannot have the correct margins for distinguish for both the ancillary and the storage services.
spk03: Okay, all right. The other point is that, you know, Typically, what we have seen is that when it comes to comparing you against the peers, the sort of margins that you have are on the much higher side. So your EBITDA margins are close to 80% or 80% plus. But when we look at some of the storage peers, we see that margins are not beyond 50% to 60%. So what is the key reason behind that?
spk02: Can I take your question, Saeed? So when you're saying peers in the market, I would kindly ask you, which is the peer group that you're referring to? Because in our view, there is only one peer that is close to us, which is also not 100% a peer. I think that, and I hope that you're not comparing us to MLP structures, which we are not. So to give you a comparison, which we most of the time use in our roadshows and discussions with investors, is a company called Volpac who has about 60 to 70 terminals independent around the globe. And even that is not 100% comparable, because that company has also edible oil terminals, strategic oil terminals, they have static oil terminals, and LNG, for example, and not specifically the type of industry that we are operating in. So the reason for that, and if you look it up online, what is their, let's say... ancillary service revenues you will see that it is much less and that's because it's a mix of all those products sorry those ancillary services over the scale of that so an ancillary service just like say it says you cannot you cannot let's say do an internal transfer or a mix of a brand without doing the transfer from one thing to the other if you are heating a product which is typically required for fuel, you need that on a daily basis because otherwise you cannot move the product. So in a way they are all interlinked to each other. And the revenue mix that we are having is because the facility that we have constructed can do 11 simultaneous operations in the 400,000 cubic phase 2 will add another 6 to that. So you have 16 to 17 simultaneous operations with flow rates who are double or triple the speed of other facilities. So an end user can do many more operations in the same facility with the same capacity than he can do or she can do compared to the market, the peers in the market. Another thing is that it's fully automated. So our staff that's operating phase one is seven people. We don't need extra staff for phase number two. You have seven people operating in four shifts. You have 28 people operating the facility. If you see that compared to the, I would say, global peers, you would expect to see a million cubic storage capacity operated by 15 to 20 people per shift. So there's a lot of difference in that as well in terms of overhead, in terms of maintenance, less maintenance cost over the life cycle of the facility. So I hope that I'm answering that question to you in a different manner where we are different than another facility. And I would still like to understand on a separate basis, which you consider us as peers, because I would really like to understand.
spk03: Yeah, we were looking at names like LBC Terminal, New Start Logistics. These are the couple of names. Obviously, Wopac is a big company in itself. It has many segments, but they have a terminal, I think, in Fujairah. But we don't know what are the margins there, exactly, in Fujairah. So those are the two companies that we were looking at to compare. So what you're trying to say is that you have the most advanced... Sorry.
spk02: Yeah, yeah. Sorry, like you said, Volpac is producing or providing the annual figures overall, and they're not breaking it down for facility. So another thing is, like you said, NuStar, especially LBC, is a liquid bill company, I guess it is. The company is also doing a lot of drumming and other type of operation that we are now doing. They're also having, to the best of my understanding, doing chemicals, and who has a different type of dynamics than we are doing.
spk03: Okay. But in general, what your point is that trying to make is that the kind of technology you have is much more advanced versus the peers, right? And your core business is storage and services, so not like... Okay, all right. The other question is linked to... Okay, thank you. The other question is linked to... The contract that you have with the super major, so you're saying that currently, you know, it's up with them for six months and the extension has not yet been discussed. But let's say even if they don't want to extend it, then what happens next? This goes back, this storage space goes back to BIA. And if it goes back to BIA, then it goes for how long?
spk02: For the tenure, so in the case that the supermajor don't want to extend, it goes back to BAA, and they have people lined up to take up the capacity. I think that's not a secret that the market is hopped in terms of requirements for storage capacity in Fujairah. But let's say in the whole world at large, going forward, and it takes... for the next year to come. So we are not at all worried that this capacity will not be filled immediately on long-term basis.
spk03: Okay. And just the last one from my side, on the phase one, so the contract that you have with BIA, there is still, I think, a couple of years to go, two to three years to go with that. But on the end-user side, the contracts that BIA has with end-users, I believe as per your last presentation, it was ending in four to five months, that contract with the end users that BIA had. So any updates on that? There were some options also over there. Have the option been taken up by the end clients or any clarity you can give us on the further visibility on the end users?
spk02: We have a contract with BIA on a long-term basis, and BIA mirrors the requirements that BPJC has. So there is a customer base from BIA with multiple large investigate end users, and that customer base may change from time to time. And once again, if that, in our case, let's say the supermajor is not extending, there's enough other end users, large investor grade operators, NOCs, or global traders who want to take up the space immediately.
spk03: Okay, all right, thank you.
spk04: Thank you. The next question is from the line of Kia Williams with Finn Partners. Please proceed with your question.
spk08: Hi there, thank you for the call. Most of my questions have been answered. Just on the topic of the IA and the phase one, could you discuss what terms you are contracted with them? I understand that the remaining contract tenure with end users could be different, but your remaining contract tenure with the IA, is that something that you could discuss with us?
spk02: What I understand from the question, and please correct me if I'm wrong, is how long the tenure for phase number one is after today. Is that correct?
spk08: Yeah, exactly. I just wanted to understand how the dynamics of phase one kind of work.
spk02: Okay. So, Saeed, I think that's more in your corner in terms of complex, but to the best of my understanding, that's, and we have also publicly announced in our online investor presentation that it is more than three years from today. Is that correct, Saeed? Yeah, three years, yeah. From today.
spk08: Three years, okay. Okay, and is that something that has options after that, or you'll have to renegotiate from scratch? Okay, so you have options as well.
spk02: We have options either, I mean, the option is ours to renew it at more favorable terms, or not to renew for another five years.
spk08: Understood. Understood. Okay. Thank you.
spk02: You're welcome. Thank you.
spk04: Thank you. This reminder, you may press star 1 to ask a question. Our next question is from the line of Bajie Toshi with One Hill Capital. Just to answer your question.
spk06: Yeah.
spk04: Hi.
spk06: Hello. Thank you for taking my call. Given the latest release, I think the amount of cash left on the balance sheet together with the new bond rates, are you able to provide an update to the liquidity situation and the remaining amount that is available for working capital at least until phase two hydro testing is done and the contracts can start generating cash flow? Thank you.
spk02: Saeed, can you please take the question?
spk09: Yes, so what I understand from the question is you need to know the available cash balances and the cash position for us to continue swiftly working up the requirements, right?
spk06: Yes, and also I think with regards to Phase 2, I think you shared a release regarding the hydro testing being in process, and I think In line with the previous question, when should we expect to see that hydrotesting being completed? Thank you.
spk09: So I will answer the first part of it, and then the hydrotesting part will be answered by our CEO, Mr. Nicholas. So the first part is, yes, we have closer bonds. and we have made all the payments as per the purposes outlined in the utilization of the bond terms. We have settled the existing lender. We have finished the contractor payments and everything, and we are sufficiently liquid to perform all our working capital requirements without any external support. And the only debt on our balance sheet is, as of today, is the bond which we have just recently closed. There is no requirement of any external support for the working capital. Now, for the second part, for the hydro testing of phase two, if, Nico, will you be able to answer, I mean, can you take the question?
spk02: Absolutely. So the hydro testing is the process which is, let's say, a key milestone in the process. We have announced that some time back. We have completed more than half of the testing successfully. We have now reached to the last few of the large size tanks and these are huge. They are 108,000 cubic each. Excuse me. So we will finish that very, very shortly. And based on that, we can connect the remaining pipelines and the electrical connections to our existing control room and pump house. Very much so. Thank you.
spk04: Thank you. At this time, we've reached the end of our question and answer session. Now I'll turn the floor back to management for closing remarks.
spk02: Thank you, operator. And thank you very much for everyone who joined us on today's call. We are at a very important juncture of our development and appreciate your support and interest in our company. At this time, there is a very significant opportunity for us to capture demand for storage at a time when the storage facilities around the world are reaching capacity. Our location in Fujairah is one of the world's most important oil hubs. The strategic advantage that our location gives us looks to become even more important in the future as European oil companies continue to divest some of their oil assets, diverting even more of the industry to the Middle East. With the anticipated launch of Phase 2, the company is at a tipping point and expected to start generating significantly higher revenues. I will now ask the operator to close the lines. Operator, kindly close the lines. Thank you.
spk04: This concludes today's conference. You may disconnect your lines at this time. We thank you for your participation.
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