d'Amico International Shipping S.A.

Good afternoon. This is the conference operator. Welcome and thank you for joining the Di Amico second quarter and first half 2020 results conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. If anyone needs assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Paolo D'Amico, Chairman and CEO of D'Amico. Please go ahead, sir.

Hello to everybody, and thank you for joining us to our usual call. Let's go straight to the results. On the 1st of 2020, Our company posted a net profit of $17,100,000. This is Versus 24.3 million loss in first half 2019. And adjusted net result excluding non-recurring, non-cash items from both periods, we have 26.4 million in first half 2020 versus a loss of 9.2 million in first half of 2019. So we have an increase of 35.6 million year on year. In Q2 2020, the company posted its best quarterly result since Q2 2015. with a net profit of 15.6 million versus a loss of 18.8 million last year. Here again, excluding non-recurring items from both Q2 2020 and Q2 2019, the net result would have been 20.1 million profit this year against a loss of 4.8 last year. The daily spot rate on the first half of 2020 has been $21,238 per day, against $13,326 achieved last year. So it's a 59.4% improvement, or if you prefer, a $7,900 per day improvement. In Q2 2020, this generated its best quarterly spot result since Q3 2008, with a daily spot average rate of 25,118, so 92.1% higher than the 13,000 achieved on Q2 of 2019. 63% of the company days on first half 2020 were covered through time-charted contracts at an average daily rate of 16,042 against the coverage on the first half of 2019 of 47.3% coverage at $14,496. So the company achieved a total daily average rate of $17,930 on the first half of 2020, versus $13,879 last year, and $19,555 on Q2 2020, against $13,700 and 10 on Q2 2019. The net financial position, excluding IFRS 16, to the fleet market value ratio, was 62% at the end of June 2020, versus 64% at the end of 2019, and compared with a 72.9% at the end of 2018. In April 2020, this announced that Glenda International Shipping, a 50-50 joint venture with Glencoe, signed a memorandum of agreement for the sale of EMR vessel Glenda Meredith. In Q2 2020, this transaction allowed Glenda to generate around $18.8 million in cash, net of commission. In May 2020, this announced that D'Amico Tankers signed a memorandum of agreement for the sale of the anti-size vessel Cerro de Guanzo. In Q2 2020, this transaction allowed D'Amico Tankers to generate $8.8 million in cash, net of commissions. Both of these vessels were delivered to their new owners before the end of the first semester. In July 2020, this announced that D'Amico Tankers signed a memorandum of agreement for the sale of two MRs, high progress and high performance. This further transaction will allow D'Amico Tankers to generate a total net cash around $16.3 million in the second half of 2020. Talking about the market, the beginning of the year, the general idea and outlook was quite positive based on the fundamentals due to the implementation on IMO 2020. So we were expecting a very good period. Unfortunately, the sentiment changed rapidly at the end of January when COVID arrived in China, COVID-19. basically killing the demand and refining activity under the biggest importer of crude oil in the world. In March, the OPEC members and Russia, they didn't agree on a price and this took basically the oil market to a price war which killed the level of the barrel at very low levels. This sparked a rush from many traders and oil companies to try to stock as much oil as they could. As you know, the oil storage on shore has been rapidly filled up and then they start moving at sea. which has been taking in a lot of crude oil tankers and also product tankers who went on dirty. The storage moved also a lot on products. Anyhow, after this war, OPEC Plus, they agreed to reduce to reduce the production in two tranches, one in June and another one should be now in July, and this is already improving the price of the barrel. Certainly for us today, we are very much in a different market since the last three to four months, but we look at the end of the year in a very positive way because we think the fundamentals are still there. Of course, we must see how COVID will, let's say, behave. If we are going to have a second wave, if we are going to have a lockdown again, I don't think so, and how all this will fall on our system. Say that I leave a word to Carlos.

Good afternoon to everyone. Just a quick look at our fleet, which is at the June 30th was composed of 42 vessels. Fortunately, thanks to the strong markets over the last year or so, these strengthening markets, for the last year or so and very strong markets over the last six months. We had the opportunity to sell some of our older vessels which we have intended to do for some time now and we found a much greater liquidity in the market over this period and so we managed to execute on this plan. Therefore, we have now a very young fleet, 6.8 years, of course, also young because of the important new building program that we executed between 2012 and 2019, which entailed the delivery of 22 new buildings to us and over 750 million dollars in investments just in terms of payments to the yards. We are basically an MR player with a presence also most recently in the L01 segment that we built. They are all echo vessels and in the handy size segment too. Going on to the following page, the new building, the CAPEX commitments, important to highlight that they now don't comprise any more investments for new buildings, so we are much lighter in that respect, and it's only maintenance CAPEX over the foreseeable future. and also the second half of the year in terms of maintenance CapEx is much lighter than the first half. It's only around $3 million in investments against $7 million in the first half of the year. The CapEx commitments fall further in 2021, where we only have $5 million in commitment in 2022, which is around $4 million. Going on to the next page, the bank debt repayments also are going to be lighter from this year, following the reimbursement of the Intesa facility which we had, which entailed $15 million in repayments every year, and that was in addition to the traditional bank financing. we use and that has been fully reimbursed in December 19. In terms of refinancing needs, balloons, upcoming balloons, we still have some here that we show in 2020 and those are relating to our vessels which are in joint venture with Glencore through Glenda International Shipping. and we are in advance discussions already working on the loan documentation for the refinancing of these vessels. And for those, for the balloons which are here shown in 2021 of $26 million, we are in advance discussions with some banks to refinance these and we hope to finalize these in Q3 this year. and so then we would only have, if we manage to execute on this plan, the $65 million to be refinanced in 2022. So we believe we are in a very strong position also in terms of bank debt repayments. In terms of purchase options, all the purchase options that we have on the nine sales deals we closed on are theoretically in the money and six of these are already exercisable today. Another three will become so soon, one in September this year, another one in April 2021. The fact that they are in the money doesn't mean we won't be exercising them because they would in any case entail quite high LTV laws which cannot be obtained today with traditional banks and therefore they would require additional equity which we right now prefer not to invest. for this purpose, given the uncertainty regarding the timing of the recovery because of COVID. But at the latest stage, when we have more visibility in the firm market, that could be a potential use of funds for the cash that we have been generating this year, both operationally and through vessel disposals. Going on to the following page, the coverage, we benefited from the very strong markets in Q2 this year and for a lesser extent also in Q1, but we nonetheless kept our feet firmly on the ground. We realized that the strong markets was based on imbalances As Paolo was mentioning, we entered the year with very strong fundamentals and a very positive outlook for completely different reasons. But things changed fast with COVID. And so we continued taking contract coverage throughout Q2 when the markets were booming and we managed to increase our contract coverage for the second half of the year to 57%. at an average rate of 16.4. So this positions us very well to confront the weak markets we have right now. Particularly in Q3, we are 62% covered. So it's almost two-thirds at 16.3. And hopefully this soft patch will not last that long. the percentage of echo vessels in our fleet has been increasing as we have been selling the older vessels, as previously mentioned. Going on to the following page, we show the fleet evolution. This is, let's say, the organic fleet evolution. If we don't do anything, the fleet decreases naturally as some of these TCNs terminate. and the sensitivity to every $1,000 per day change. NTC equivalent earnings we showed at the bottom right of the page, and it is actually quite low today for 2020. It's only $3 million, but it rises considerably in 2021 to $10 million because we are still very exposed to the spot market in 2021, although with a slightly smaller fleet. Going on to the following page, the daily operating costs, they have been falling. This is for the half year 2020 compared to the half year 2019 and 2018. So there was a slight improvement also relative to the first half of 2019. Of course, the biggest improvement was between the first half of 2018 and the first half of 2019, but overall we have an 11% decrease since the first half of 2018. And it is due to the fact that we are managing a younger fleet, a more efficient fleet, two changes in our purchasing strategy, and to the stronger dollar to a small extent, and also that we experienced during this period mostly I would say to investments also in technology and the adoption of condition-based maintenance, which allows us to considerably lengthen the life of spare parts and generating important savings for us in this respect. On the GNA, we reorganized some of our activities and we managed to achieve some savings. We also benefited to some extent of the strong dollar and we achieved the saving relative to the first half of 2018. There is an increase relative to the first half of 2019. These are daily figures, so the increase is mostly attributable to the fact that we are managing in the first half of 2020 a slightly smaller feat than we did in the first half of 2019. But I can assure you our GNAs are very competitive on a daily basis, still today in the first half of 2020. relative to most of our or if not all of our listed peers. Going on to the following page on the ratio of net financial position to fleet market value. This is also a key indicator we follow and we aim to keep within certain levels and it has been falling since December 18 when it was at 73%. It fell to 64% by the end of 19, also thanks to the capital increase that we pursued that year. And it fell further to 62% at the 30th of June. It benefited from the, in addition to the capital increase I mentioned, of course, from the strong operating cash flow generation in the first half of the year. We finished the first half with over $15 million in cash. which is quite a comfortable position to be in given that our minimum liquidity covenants in our bank financing is of 25 million. And as I mentioned, the sensitivity for every $1,000 per day change in the TC equivalent earnings is only 3 million, around $3 million for the second half of 2020. And in addition to that, as Paolo mentioned in the beginning of the presentation, in July, We signed MOAs for the sale of two additional vessels which should bring in another $16 million to our coffers. We have a much stronger financial position and liquidity position generally. Looking at the key line items of the P&L, as Paolo mentioned in Q2 2020, the profit of $15.6 million. and excluding non-recurring items of 20 million. This figure is the strongest since Q2 2015 and of course it was driven mostly by the very strong markets in the second quarter of the year. If we look at the first half, the bottom line figure of 17 million and excluding our recurring items, we are at 26. If we look in detail at the daily results of our vessels trading on the spot market and employed through TC contracts on page 16, we see that the average rate for the vessels operating on the spot market was of 25,000 in Q2, And that is the highest since Q3 2008. So it is a very, very strong result. And even if we look at the first half, we are above 20,000. We are at 21,200, coupled with the TC contracts, which were just over 60% for Q2 in the first half. We have an average, a blended average of $19,500 for Q2 and $17,900 for the first half of 2020. When I pass it over to Paolo again for the market overview.

Thank you, Carlos. So, going back to the market, as I said, we started the year with a very positive note. And of course, unfortunately, at the end of the first month, the outlook changed immediately with COVID in China. Of course, the world has been in a lockdown. Half of the planet has been closed. So the demand destruction of crude oil and refined products has been extremely important. It's been devastating. They didn't agree on the price. This took them to a sort of price war and this sparked the market because there has been a big rush to storing oil and storing product. The crude oil market was so strong that many product carriers got dirty in the way of taking better rates. Also, the product market hit strength, so we got very good rates for a certain period of time. Of course, this demand was driven by the storage factor, principally, because the final demand, as we say, was not there. And once the Russians and the Saudis agreed again on the cut of production, things went worse for us because the market group went back where it really was the fundamental of the ministry. There's been a large drop in oil demand and, of course, in refining throughputs. So, it looks like, according to IEA, global oil demand is expected to fall by 7.9 million barrels per day, which means 92.1 million barrels per day in 2020. This is relative to Last year, we were close to 100 million. And we think we will recover 5.3 in 2021. The global refinery grants are forecast to fall by 6.4 million barrels per day in 2020 to 75.1 million barrels. So this is the... let's say yesterday's story, this has been the impact of COVID on our system, but still looking at tomorrow and the day after tomorrow, we think that the fundamentals are there. We see that the participation, for instance, of products on the total oil seaborne trade increased from year 2000 was 25%, today is 34%. And there is a long-term growth on refining capacity. We are talking about something like between 2020 and 2024 of 6 million barrels. And 75% of these 6 million barrels are let's say far away from Europe, and this is substantially Europe, which is the main diesel market. So the ton-mile element should be more than positive, should increase, giving a better outlook for the product carriers' indices. Against all this, we have a very low growth of a fleet. The supply is, number one, it's been postponed because during the lockdowns, ships are not being delivered, basically. And now they are coming back. And even with very low scrapping, the fleet growth is expected to be only 2% in 2020. and 1.2% in 2021. And we should even expect a reduction on the fleet growth already on the second half of this year. Due to many reasons, one of these is the uncertainty of the future fuels and let's say worries about from the ship owners in general there is very limited new building order so putting all this together we think that the fundamentals will play on our favor in the future of course the big question mark is how big how strong is going to be the second wave of covet if it's ever counted. Thank you very much.

Just a final look at the NAV evolution. Your NAV per share is of $0.25 on page 32. So there is a small decrease relative to March 20 when it was at 0.26 per share. And the overall NAV after peaking in March 20 at 320 is at 313. Despite the profit, despite the cash generation, because of a softening in vessel values, in the second quarter of the year, reflecting the much weaker market in June this year, after the April and May peaks we experienced. Basically, that's it. Shares are trading at a huge discount to NAV, nonetheless. And... we are in a, I believe, very strong financial and liquidity position. And therefore, the risks of dilutive capital increases, I believe, are very limited. And therefore, I believe also this discount is excessive. It's not justified by the fundamentals, which as Paolo exposed, although there's a lot of uncertainty around the short term. And there's, of course, a period of adjustment to digest these excess inventories which have built up as a result of the imbalances related to COVID and to the flooding of oil in March by OPEC+. We believe that this process should not We should not be very long. Half of the increase in floating storage since December was apparently already reabsorbed in a few months since the OPEC production. So that is a very positive sign. And medium and longer term, we are very positive on the fundamentals. And therefore, we don't feel this discount is justified. Thank you very much and I pass it over to you for the questions.

Excuse me, this is the Coruscant Conference Operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. To remove yourself from the question queue, please press star and 2. Please pick up the receiver when asking questions. Anyone who has a question may press star and 1 at this time. The first question is from Matteo Bonizzoni with Kepler. Please go ahead.

Good afternoon. I have some questions. The first one is what are you seeing on the asset values? So are you seeing some deflation in the transaction values? Yes or no? And what are your expectations going forward? Then I would like to know as regards the next financial position, we have seen a nice leverage over the last couple of quarters driven by low CAPEX and also I think the asset disposal, if you can clarify how much was included already in first half and how much of the recently announced fee disposal should be included in terms of cash in the second half. So should we expect net financial debt excluding the RS-16 to be somewhat below or in the region of $500 million at the end of the year? Thanks.

Yeah, so regarding the – I'll start with the second question. And regarding the CAPEX and the vessel disposals, The cash from the sale of the Cello di Guanzu and the Glenda Meredith are already part of our first half financials. But the cash that we will receive on the sales of the high progress and high performance, so the around $16 million, will come in in the second half of the year. And it is possible that we might even... another vessel before the end of the year. Regarding asset values, they have come down, but not in a considerable way. We are still able to sell vessels at quite attractive values. Let's remember that they had increased considerably. We have a slide in the presentation where we look at this. You can go back to that particular slide. It's on page 18, and there we show the 5-year-old and 10-year-old asset values. And we see that there is this decrease for the 10-year-old asset values from $20 million to $18 million. So it's a 10% decrease. And we see the similar decrease also for the 5-year-old vessels from $31 million peak around February, March to $27.5 million. But 27.5 million is still considerably higher than the 22 million that we had in October 16. And 18 million is also considerably higher than the 15.5 we had in October 16. So, yes, there was a correction. It reflects the weakest spot markets, the uncertain outlook over the next 12 months. But the fact that the values have been increased by more is a testament to the fact that most players are still very confident in the medium to longer term fundamentals of the sector and so people are not ready to just sell at any price and they want to hold on to their good assets to be able to participate in the recovery when it happens, which would be driven by the same fundamentals which were driving the recovery until the end of last year, beginning of this year before COVID-19. And if anything, I think that in terms of order bookings improved further because as Paolo mentioned, there was very little demolished over the last 18 months. and therefore the potential for demolition increased going forward, and we have today the proportion of the fleet that is greater than 20 years is higher than the order book, and that is a very good sign.

Thank you.

The next question is from Bonistoli Massimo by Equitas. Please go ahead.

Yes, good afternoon. Thank you for the presentation. A couple of questions. One regards the coverage of your spot rates, considering the increase in the coverage that you have taken thanks to the quite high prices on the market. What are the level of prices that would trigger further coverage in the future in the sense that now the market seems to be less strong than before? And the second question is, considering the deleverage of the balance sheet that took place over the past few quarters, What is the leverage range that you would consider as normal in your balance sheet, and maybe that could trigger some dividend payment going forward? We have been talking about this in Q1. I don't know if this has changed over the past quarter.

Talking about the rates, today's rate for a one-year period should be around $13 million. for, let's say, for a non-ecoship. And it should increase, let's say, by close to $1,000 for an ecoship. And this is a bullpup. Going longer, is it possible because there is no market today? I mean, there have been some tentative deals for three years, but... Of course, due to the uncertainty, charters, they moved away and they are not taking position longer than a year time. And as far as the second question, excuse me, can you repeat it?

In the sense that you have been the leverage in the balance sheet recently, so now you have a leverage that is quite sound considering the fleet available. Do you consider this leverage already a level in which you can start paying dividend going forward or let's say you wait for the leverage to consider dividend payments?

We think that we are still in our deleverage mood. And that is our opinion because we want to have a very prudent approach to the future.

Okay, thank you. Thank you.

As a reminder, if you wish to register for a question, please press star and one on your telephone.

Once again,

If you wish to ask a question, please press star and one on your telephone. The next question is from Daniele Alibrandi with Maine First.

Please go ahead.

Mr. Alibrandi, maybe your line is on mute. We cannot hear you.

Can you hear me? Yes, now we can.

Okay, so thanks for the line. Just a question, Matt. actually on how do you see um jvda evolving in 2020 we've seen the market is not as buoyant as in uh april may uh rates have a little bit come down so uh just uh how do you see uh maybe if you can be more uh i think give us more more visibility now that we are in Early August, maybe on EVDDA also, the consensus is quite wide, around 140. So do you see maybe this level is achievable?

Thank you.

Look, unfortunately today, to look at the future market, you must be more a virologist than a shipowner. We had just one moment in South America a few weeks ago where there has been a lack of tonnage. The market moved immediately from $10,000 to $20,000 a day for one ship on one trip. There is a sensitivity in the market which is very strong. It means that the product has to be moved. and in some cases to be more fun enough at any cost. So it is difficult to say what is going to happen tomorrow. If we keep going the way we are, we are seeing anyhow some improvements coming in. Of course, today, for instance, this month and next month, this should be the gasoline price period because America should be driving its cars on the streets. Unfortunately, they are not because most of them are locked down at home. But as you see a movement or in a state you have more people coming out, you realize immediately, there is a very strong sensitivity, you realize immediately the demand. I think it's to me impossible to give a serious answer to what is going to happen from here to the end of the year. The only thing I know that this COVID is going to finish and then our forces will come in and the fundamentals, as we say, are there and are positive.

Gentlemen, there are no more questions registered at this time. Gentlemen, would you like to add any further comments to conclude the conference?

Not really. Thank you very much to everybody. Thank you.