Odfjell Se B

Good morning everybody and welcome to this presentation of Oddfjell's third quarter results. This presentation will follow a traditional pattern. I will start and take you through the highlights. My colleague Terje Iversen will take you through our financial performance and then I will conclude this presentation with an operational review, market update and prospects going forward. If we then turn to the highlights, we delivered another very strong third quarter result despite a slightly softening spot market. We had a strong safety performance and we had no significant incidents during the quarter. Our time charter earnings in Oddfjell tankers ended at 212 million US dollars. This is 13 million dollars below the second quarter, which was a record of 215 million US dollars. We delivered an EBIT of 91 million US dollars, and this compares to 107 million US dollars in the second quarter. We had a very strong quarterly net result of 71 million US dollars and this net result adjusted for one of items remained at 71 millions compared to 88 million US dollars in the second quarter. And by that we delivered the second best quarterly result in Oddfjells history. We renewed a limited number of contracts during the quarter, but still the rates were up 7%, and this is the 14th consecutive quarter where we deliver rate increases in our contract portfolio. The net contribution from Oddfield Terminals was $2.9 million, and this is in line with what we delivered in the second quarter. Our carbon intensity, the AER, for the third quarter came in at 7.2, and this is marginally up from the second quarter due to seasonal effects mainly. And the average AER for the first three quarters of 2024 is 7.12. During the quarter, we took delivery of one more new building on long-term time charter, and that leaves us with 16 vessels currently on order, 15 vessels on long-term charter in Japan, and we have one vessel on order in China on our own book. At the quarter end, Oddfjell also declared a purchase option for one 41,000 deadweight stainless steel vessel, which is currently on bare boat to Oddfjell, and that vessel will be delivered to Oddfjell early 2026. Outlook, we expect another strong quarter in the fourth quarter, but this will likely be below the third quarter due to the presently weakening spot markets. And by that, I give the word to my colleague Terje Iversen.

Thank you, Harald. I will then take you through the financials this quarter. And as usual, we'll start with the income statement. We saw net time charter earnings ended at 202.1 million, down from 214.8 in the second quarter. The reason being that the spot rates came down, as Harald mentioned, and we also saw some reduction in nomination under our contracts. Volumes were stable though, meaning that some of the contract volumes were replaced with increased spot volume in this quarter. Time shutter expenses ended at 1.2, down from 3.4 in the second quarter. Open expenses increased with 2.7 million to 53.7. Main reason for the increase is that we had some positive one-offs in the second quarter. So this is maybe more on a normal level this quarter. Share of net results from Eschoges and Young Ventures being the terminal business ended at 2.9, same as the preceding quarter. GNA ended at 17.9, up from 16.2 in the second quarter. Main reason for the increase being that we had some positive one-offs also in the second quarter, meaning that the numbers in the third quarter are more on the expected level. That gives an EBITDA of 132.3, down from 147.2 in the second quarter. Deprivation and amortization increased slightly to 41.8. Main reason for the increase being that we have more vessels on our balance sheet. And we also did extraordinary deprivation of the air lubrication system that we have invested in. That leaves us with an EBIT of 19.5 compared to 107.4 in the second quarter. Net interest expenses under the 18.3 improvement from previous quarter. The main reason for that is that we have lower interest expenses, lower debt, but also that we had higher interest income this quarter. After other financial items and taxes, we are then left with a net result of 71.3 compared to 88.2 in the second quarter. And this gives us an earnings per share this quarter of 90 cents. Time shelter earnings ended at 33,906 per day this quarter, down from the record quarter of 36,493. in the second quarter. But of course, we have a large gap between the cash break even, which is around 23,000 when we are looking at the 12 months rolling average, compared to the time shutter earnings of 33,906 this quarter. The slight increase we saw in the cash break even this quarter was mainly driven by the fact that we had lower OPEX and GNA in the preceding quarters and we did also capital repayment that positively impacted the cash break even in the second quarter. Going forward, we have reason to believe that we will stay around 23,000 level also for the coming quarters. Looking at the balance sheet, we see that we have ships and new building contracts at $1,238,000,000. We also see that we have an increase in rate of use of assets to 307, the reason being that we took delivery of one new time shuttle vessel, Bokuga, this quarter, and that also increased the non-current debt rate of use of assets and also current debt rate of use of assets this quarter. Looking at the cash position, we ended at 144, quite stable to the preceding quarter. If we include the undrawn loan facilities, we have available cash around $231 million per end of the third quarter. On the equity side, that was a slight reduction to $889 million, the reason for the decrease, of course, being the dividend that we paid out during the third quarter. Also on the balance sheet, it's interesting to note that we have a current portion of interest-bearing debt of $168 million, and the main part of that being the bond that is maturing in January next year, which I'll come back to later in the presentation. The cash flow this quarter, we saw a strong operating cash flow. We delivered $118 million in cash flow, up from 108 in the second quarter. Reason for that being that we, of course, continue to deliver stable and good results, but also saw an improvement in working capital this quarter, which then led to record high cash flow operating activities this quarter. On the investing side, we had some investments in non-current assets being dry dockings and also some smaller investments in our vessels. But we also had a positive impact from Boat Atlantic, which was delivered in the third quarter, where we received 5.2 million US dollars in net cash proceeds. So that led to a negative cash flow from investing activities of 1.4 million US dollars only this quarter. On financing activities, most interesting to note is that we paid a dividend of $79.1 million during its quarter. On the repayment of debt and operational lease debt, it's very much the same level as preceding quarters. That led to a net cash flow from financing activities of negative 113. But for the quarter as a whole, we had a slightly positive increase in cash and cash equivalents. Looking at the cash flow from a more long-term perspective and looking at the free cash flow, we delivered $160 million in free cash flow this quarter, being the strongest quarter ever, I think, for Oddfjell. Of course, driven by high operating cash flow and also by the low cash flow from investment being negative, only $1 million. Looking at the 12 months rolling free cash flow, we are down at $88 million. And if you adjust for debt repayments related to right of use of assets, we have reached $71 million. Going forward, we have rather limited capex commitments. We have two vessels that we have bought back and we are going to take delivery off in the end of this year and next year. That will impact the free cash flow, but based on the favorable purchase price for these vessels, we expect to finance those more or less at 100% of the purchase price with new mortgage financing. Looking at the depth side, going to the coming quarters, we see that we had a balloon of around $25 million maturing in the fourth quarter. That has been taken care of already. We had two vessels that were on lease. We brought them back and we took one of the vessels into an existing bank facility where we left the other vessel unencumbered on our balance sheet. Bond maturing in January. The plan is still to repay that, the maturity, with cash-per-month balance sheets. And based on the cash and the cash position we have today, that should be not a big issue for us to take care of when that time comes. Going forward, we see that our balance is, we continue to reduce our debt, debt around $769 million end of this quarter, and we expect to be around $750 million end of this year. And we also expect the debt to continue to decline going forward, unless we should do anything material on the fleet side going forward. We are still exploring refinancing alternatives. We have some leasing facilities that could be refinanced, and we think that could be favorable with regard to the timing and with regard to the terms we could obtain, both when it comes to the margins and also the repayment profile that we can obtain for a new financing of these vessels. Looking at the CAPEX and time-shutter commitments, as also Harald mentioned, we have, after the end of this quarter, declared a purchase option for Bob Hercules for delivery in first quarter 26. And this is the remaining vessel of the three for the 1,000 deadweight ton vessels that we have currently have on bear vote to Oddfjell. And the first of these vessels, Bob Aquarius, will be delivered in December this year. And these three vessels are kind of part of the original four vessels that we had on operational lease from SinoCam, meaning that we have no declared purchase options for all those vessels. All the purchase options also are well below the current market values, and as mentioned, we then expect to obtain financing around the full purchase amount for these vessels. Long-term time charters, as also mentioned by Harald, we have done 15 new billings on long-term time charters to be delivered to Oddfjell in the coming years, from now until 2028. And this table on the bottom part here shows what are the nominal time-shutter payments to be made on these time-shutter vessels when they are being delivered to Tordfjell. These are gross figures, meaning the total time-shutter commitments, and of course, we'll only have to book the bearable element of these vessels when they are delivered to Tordfjell. And then I will leave it up to you again, Harald.

Then I will continue with the operational review. I'll start with the market overview. We are still in a strong market, although we have experienced some more pronounced headwinds lately. The odd fix, which is an index that is reflecting Oddfjells average time charter earnings, was down 6.6%, and this compares to the Clarkson chemical tanker spot earnings, which was down 6.3% during the same period. We believe that one of the contributing factors to this decline is the swing of crude tankers from crude to products on the Arabian Gulf exports to west of Suez. The graph on your right-hand side indicates that if you look at large crude carriers in 2023, at that time the crude carriers carried approximately... 10% of that export. And since then, their influx has doubled to 20% during the third quarter of 2024. And crew tankers swinging into products is forcing MRs and handy-sized product tankers to swing into easy chemicals. And that is again taking away products from the core chemical tanker fleet. So we believe that this swing is one of the contributing factors to why we have seen a decline in our spot index. Our contracts were renewed 7% up during the third quarter. This is the 14th consecutive quarter where we report increases in our contract portfolio, but this time for a relatively limited number of contracts. I'm also happy to see that our total volumes were stable during the quarter. despite the fact that some of our contract customers nominated smaller volumes than what they've done in the previous quarters. So we maintain approximately 3.3 million tonnes of cargo on our owned and controlled fleet, and this is very much in line with the previous quarter, despite the fall in contract volumes. Our carbon intensity came in at 7.2. The average for the year thus far is 7.12, and 7.2 is approximately 52% below the 2008 average IMO baseline. progressing well with our suction sail project. The Hudonklaas vessel Bo Olympus has recently completed the installation of the foundations for these four sails. The ship is now being traded to Europe and we expect the sails to be installed on board sometime during the first quarter of 2025. We've also completed our long-running solid oxide fuel cell project. This is a project that has been going on for five years already. Our conclusion is that the technology is working, but it's also our conclusion that the technology is immature for installation in a marine environment. Nevertheless, we've gained very interesting experiences related to the technology and also related to future fuels since the solid oxide fuel cell is a multi-fuel solution. Then turning to terminals, we delivered an occupancy rate of 95% during the third quarter. We have a stable financial performance with an EBTA for the third quarter in line with the previous quarters. We also have concluded two very interesting expansion projects, one at Ulsan and one at our Antwerp terminal. We have recently approved the expansion project at our terminal in Korea, the E5 project, expansion number five, and this project will comprise 10 carbon steel tanks of a total of 88,000 cubic meters, and we expect it to be operational in the fourth quarter of 2026. The key driver for E5 is the S-Oil slash Aramco Shaheen project, a seven billion US dollar crude to chemical facility that is being constructed in very close vicinity to our terminal. We have already signed a contract with S-Oil for 10 years for three of our tanks, and this contract will lay the foundation for future development of this strategic partnership. The project will be founded locally. We've also decided on a new expansion project at our terminal in Antwerp, two stainless steel tanks in total 12,000 cubic meters. Here, the foundation is already started due to cooperation with previous expansion projects, and we expect those two tanks to come on screen already during the second half of next year. Then I will conclude this presentation with a market update and our prospects going forward. If we look at the MR earnings in the Atlantic and the Pacific, we see that during 2024, we've seen a reduction in earnings, particularly during the second half of 2024. And this reduction is spilling over to chemical freight rates both west of Suez and east of Suez. I think the most important thing to notice on those two graphs is that even if we see a reduction in freight rates, the freight rates are still well above what we saw one year ago. So, in perspective, the reduction is not dramatic. I mentioned the influx of crude tankers into products, which again is forcing MR tankers into easy chemicals. And after the second quarter, we reported that approximately 5% of the product tankers are trading in easy chemicals. We now see that this figure has increased to 6%. If we look at the order book, we have not seen significant increases in orders. After the second quarter, we reported slightly above 9% order book, and today the order book stands at 10%. It's particularly for medium stainless steel where we see that there is an increase in orders, and during the next three to four years, we will see a slight increase in orders. in that segment. We will see a decrease in the segment for large stainless steel vessels. Here there are fewer vessels on order than what we expect to be recycled during the coming years. And the super-segregator segment is more or less imbalanced. All in all, 15% of the core chemical tanker fleet is older than 20 years, and approximately 6% of the core chemical tanker fleet is above 25 years. So we perceive that the order book compared to expected recycling remains beneficial. Geopolitical tension is still high. We have high risk situations in Ukraine slash Russia and also in the Middle East. And we've seen some increase in the instability in the Taiwan Strait. The macroeconomic uncertainty remains and we see some sluggishness both in China and in Europe. And we still see that the US recession risk is at low level, despite the fact that we expect a slower GDP growth going forward. We also see that manufacturing is still at low levels. But at the same time, the production of chemicals has increased by approximately 6% compared to the same period last year. And we see growth in China, and we also see that production is about to rebound in Germany. So, chemical production, we expect to continue to see a slight increase. We expect the average sailing distances to remain at present levels. We are not concerned about the chemical tanker fleet growth. We do believe that swing tonnage will swing back to products, and we don't foresee any changes in fleet speed. So to summarize this presentation, we delivered another solid financial result in the third quarter, although it's somewhat below our record results from the second quarter. Time charter earnings decreased in the third quarter. This came at the back of reduced contract volumes that were replaced by spot volumes that have seen a slight decrease compared to the previous quarter. We also saw increased influx of swing tonnage, volumes were stable, and we believe that the swing tonnage will gradually leave our segment somewhat. On the terminal side, we have stable net contributions, and we will see our capacity to continue to increase going forward with the expansion projects both in Ulsan and Antwerp. market outlook we expect markets to pick up seasonally towards the end of the year where the development for product tankers and swing tonnage will be the key drivers for for this uptick we also see that there are signal increased production volumes from opec and that might also have an impact early next year To summarize this presentation, we expect continued stable contributions from odd-field terminals going forward. We expect another strong quarter in the fourth quarter, but maybe below the third quarter due to the weakening spot markets that I have previously mentioned. So this concludes our presentation, and we now continue with the Q&A session. Johannes and Terje.

All right. We've had a few questions already, so feel free to add more. Terje, I think the first one goes to you. Could you mention the exact elements you include in your cash break-even? Do you include ship depreciation?

Sure, I can explain. We include in cash break even all running expenses in the group, in the shipping activity, meaning OPEX and GNA. We also include the finance element being interest and installments, and we also include running investments on the vessels. An idea is simple. As long as we don't deliver time shutter earnings above cash break even, we should be positive when it comes to be able to deliver cash to our owners. And depreciation is not included, but interest and installments are included. And that is an important factor for us to measure, and we still have a target to decrease cash per given further to have a sufficient buffer against the time-shutter earnings to be able to deliver cash to our owners.

Perfect, thank you. And the second one also for you. Do you plan to exercise purchase options on more ships?

Maybe. We have a portfolio of vessels, both on time charter and bare boats, and several of these contracts have purchase options. and they are coming into effect at some stage during the tenor of the leases. We are continuously evaluating when these are effectively open for us to exercise, whether that is favorable compared to the market price of the vessel. So yes, I think we will most likely continue to exercise purchase options going forward.

I think I can add to that question that you have to keep in mind that the purchase options that are maturing today are agreements that were made sometime between 2015 and 2018. At that time, building prices were favorable and that is also reflected in today's purchase options. So, so far, the purchase options that we have exercised have been favorable to Oddfjell, you could say.

Thank you. Then a question to you, Harald. It seems more and more likely that Donald Trump will be the next U.S. president. What will that mean for your markets?

Yeah, I saw that in the newspapers this morning. I think the first answer is that we have to see what comes before we... before we are too conclusive. But what we do know is that Trump is maybe more protectionistic than Harris was expected to be. The expectation to Harris was that she would simply continue the policies of Biden. So the expectation is that we will see more protectionism, and that might be an issue for exports out of the US. It's also an expectation that he will reverse some of the initiatives in the Inflation Reduction Act that is, of course, not good for the planet, but it might be good for Europe, which is struggling a bit because of that law. So I think all in all, we might see a slight reduction in activities in the U.S. if he is able to implement the protectionistic matters that he has promised to do.

Thank you. So we have a question from Bandic Knittingness. Can you give some more color on how important swing tonnage has been for the recent reduction in rates?

Well, swing tonnage is not directly competing with Oddfjell. Swing tonnage is focusing and concentrating on the most easy chemicals. And those are chemicals that that Oddfjell is normally not too occupied with. The problem is that when the less advanced chemical tankers lose that market, then they are also swinging upwards. So it's like a domino effect where sooner or later, other chemical players will start to swing into our core markets. So that is the reason why swing tonnage is important for us. And these are normally large vessels with huge capacity, so they are easily replacing maybe one or two or three traditional chemical tankers when they decide to go for, for instance, methanol or glycols or other relatively easy chemicals.

Right, thank you. And also a question related to this. How should we think about the Q4 guidance of earnings below Q3 compared with the last quarter's guiding of Q3 somewhat below Q2, where TCO rates were down 7% quarter over quarter?

Well, interesting question. I think we, first and foremost, we have to keep in mind that we are presently in the strongest market that we've seen for more than 10 years. In the second quarter, we delivered historic results that I think will be difficult to beat, at least in the near future. We delivered $36,000 in average time chart of earnings, which is the absolute record in Nordfjell ever. And now we are delivering a result that is slightly below that record quarter. So the fact that we are guiding slightly down is we are not concerned about that. It's a reflection of a somewhat depressed spot market. And with... With average contract coverage of approximately 60% in normal quarters, then we are still 40% exposed to that market. So our guidance is a reflection of what we see presently in the spot market.

Thank you.

So that was the final question, so I'll leave it to you for a final remark then. Okay. Then I would like to thank all of you for watching this presentation, and I wish you a good day ahead, and I look forward to welcoming you to the fourth quarter presentation. Thank you very much.