Stolt-Nielsen Ltd Ord

Good afternoon, good morning. Thank you for joining us for the Stort Nielsen Limited first quarter 2023 earnings presentation. Together with me here in London is Jens Grinner-Hegge. We will go through the normal agenda where I talk about Stort Nielsen, go through each of the divisions. Jens will take you through the financials and then we will open up for questions and answers. And the questions can be posted through this chat function, like last time. The highlights for the first quarter, all the arrows are pointing upwards, except for the operating revenue, slightly down, primarily driven by SDC. Otherwise, every other business unit delivered an increased operating revenue. The net profit for the quarter came in just $200,000 short of $100 million at 99.8, which is up from 95.3 in the previous quarter. Very much driven by the improved trading results that we see in Stoltankers. EBITDA came in at $213 million, and that is up from 196 million. Again, driven by the strong results due to higher spot volumes and higher COA rates in salt tankers. The terminal division also high results, primarily driven by strong demand in the US Gulf and in Brazil. Salt tank containers, higher number of shipments, but at lower margins. Again, I will talk about each, go through each of the businesses later. Salt sea farm also had a strong result for the quarter. The high season is, of course, December for Christmas sale, and that is reflected in our results from Stoltz eFarm. Free cash flow came in at 133.1 million. That is up from 123.7 in previous quarter. The board recommended the final dividend for 2022 of $1.25, making it a total dividend per share of $2.25 for 2022. Jens has secured that our company has a robust liquidity position. We are at $479 million, and that is slightly up from the previous quarter. If we then move to the net profit variance analysis, very quickly, high operating profit from Stolt Tankers and also from Stolthaven, low operating profit from SDC, high operating profit from Seafarm, slightly lower operating loss or higher operating loss from, uh, still decent gas, our investment in gas, in gas, lower corporate costs, uh, of 1.2 and lower interest as a result, interest expenses as a result of lower debt, but also some benefits from, uh, uh, from, uh, foreign exchange. And when you make more money, you also pay more tax. So the income tax, uh, is the almost $11 million. higher than previous quarter. Bringing in the net profit again for the first quarter, $99.8 million. Then moving to stalled tankers. The increased trading results are due to the COA rates that we fixed or booked during the quarter was up 16.3%. While the spot rates fell 6.2%. the spot volumes were up by 16.1% and the COE volumes were down by 11.3%. We'll go more into detail, but we have less contracts, therefore less contract volume, and it's been replaced by spot volume. That's again why the spot volume is up, even though the spot rates went down in the first quarter, reflecting the slight dip we saw in the MR market in the first quarter. We had lower net bunker costs, and that was partially offset by also lower bunker surcharge. Lower owning expenses, and that was mainly driven by a recording of the Stolt Grönland insurance claim that we received. But even if you take away that proceed, the owning expenses were slightly down from previous quarter. The higher steel prices has increased the residual value of our fleet. which then has led to lower depreciation. Higher joint equity income, and that is of course in line with our fleet, that is also reflected in our joint vouchers, are also making more money. And then we have the lower gain on sale of assets. We sold one ship that sold share water in the fourth quarter, and also we recycled and therefore we have a lower gain on sale of assets in the quarter. bringing the operating profit to 87.1 million for the quarter, and that is up from 78.2 in the previous quarter. The bunker prices, lower net bunker cost. So 99% of the contracts that we currently have has a bunker close. The total volume covered by the bunker closets are now at 56.5%. Again, that reflects that because we have less COAs than previously. That number used to be around 65%. But the spot market is strong, so we're able to kind of get compensated for increasing bunker closets that can be charged through the spot rates. bunker search algorithm was down by 9.2 as prices dropped and our COE volumes decreased. Bunkers consumed down by 10.3 resulting in a net decrease in bunker costs of 1.1 million dollars. Moving then to the sale in revenue chart and as you can see here we ended the quarter at 29 just slightly above $29,000 per day. We gave a guidance the previous quarter between 5% and 7% increase. As we tried to explain last time, it's very difficult for you to understand the COAs renewed, the COA lost, the replacement, because each COA is different in volume and rates. So we decided to give you a guidance per quarter and last quarter we gave you a guidance of five to seven and it came in at seven. So it was within the guidance that we gave. The spot rates, the spot versus COA, we are now at 43% spot, 57% COA. 55% of the contracts are being renewed in fourth quarter. and in first quarter. To date, we have concluded 26 COAs during quarter, and we have added one new COA in the first quarter. So in the fourth quarter, 26 COAs, and in the first quarter, we added new contracts. We have 21 COAs that are still in negotiations. So as we told you last time, we're pushing very hard to get the contract rates up. And that means that these negotiations can be dragged out in time. Some of the contract customers decided to go to the spot market, but are coming back. Some are remaining in the spot market, but 21 are still in negotiation. But I also, and you can also see that of the contracts that we renewed in the first quarter, we got a 50% increase on average, but we didn't renew 22 contracts. So there are 22 contracts have not been renewed during the fourth and first quarter. So we're being very aggressive. We feel comfortable with that. But it results in a lot of contracts volume are now not being renewed. And and we are now more dependent upon the spot market, which I feel comfortable with. The positive impacts for these renewals, this 50% increase that we have achieved in the first quarter, we reported 30% in the fourth quarter, 50% on average in the first quarter. Again, a lot of contracts not renewed. But the possible impact of these renewals, well, you will see that over the next four quarters. So to continue to give it an indication of what to expect and what we believe is going to happen, we are giving from flat to 2% increase in the sale-in for the second quarter. So we were spot on in our previous indication. So I think you should also put in your model that we will be within that flat to 2% increase. And why not higher than flat to 2%? It is because we saw a dip in the first quarter in the MR market. which implements the spot rates. And we have a higher spot rate, you know, spot exposure now. And also in the second quarter, and this is just a natural cycle of the business, we have more return legs than outbound legs. So we have, it's just the way it is. So some quarters you have more return legs, which earns less than the outbound legs. And so we will have more return legs in the second quarter. So again, guidance around a flat to 2% increase. We remind you that $1,000 change in sale-in has an impact of a net income of $6 million per quarter. And I apologize, previously we showed $7 million, but that was adjusted because we accounted for pool partners and took the full account of that. So it's $6 million for each $1,000 increase in sale-in.

market highlights.

So on the right hand side you have the broker reports and you can see the dip. We saw a dip and again that was partly driven by the MRs. But we are now seeing that the MR market is picking up again and we're seeing the spot growth are also coming up again. So I do feel comfortable with the spot exposure that we have and the increased spot exposure that we have in this up and going market will actually give us access to a higher degree of spot and also higher rates faster than what we will get through the COAs. All of the regional fleet continue to deliver strong results like the deep sea. And the bottom left, the order book has not really changed. And that is the fundamental thing that is driving this market. And that's why we are so comfortable with it, is that as long as we don't see a total collapse in global economy, we feel comfortable to say that we think that the market is going to remain strong for the next two, three years, especially taking into consideration that if you order a ship today, you will be lucky to get it delivered by 26. Now, this slide is a new one, and it's really not towards the shareholders or the investors. It's more driven or more targeted towards our customers. because I know customers listen in. And we are asking for 50 to 100% increase in some contracts. We are an industrial shipping company. We make our living by providing a logistical service to our customers. We don't buy and sell ships, we build them, we operate them for 25 to 30 years, and then we recycle them. Being an industrial shipping company means that we provide a reliable service. providing we are the pipeline for our customers to deliver it on time to their specs that they require and they can rely on us in good times and in bad times and we have delivered that service to them but the historical returns in our industry has not been it's been unsustainable If you look at the chart, the last 10 years, it's been 4.9%. The last 20 years return on capital employed is 5.8%. That's lower than the cost of capital. So the new investments, if we are going to continue to build the ships that you require to deliver your service, it is in your interest that this market is as strong as it is now, because we cannot justify it towards our stakeholders to continue to build ships And that gives us a return lower than the cost of capital.

Just indicatively, 20% return on capital employed for the next five years is required for us to achieve an 8% return on capital employed.

And we're not even there yet. I mean, if you look at $30,000, we're approaching $30,000 per day on the ship that costs between 50, 60 and $70 million. So this is in your interest because unless we can get these types of rates and these types of return, there is a reason why there's a shortage of ships because nobody's been making money on it. So our time has come. The market also, somebody told me this said, said this quote, and I love it. Our time has come. The market owes us a lot of money. And for us to be able to go to our stakeholders, to our shareholders, to build new ships, these are the rates that we require. We're not being arrogant. We should never be arrogant. We never say take it or leave it. We are always willing, but we bend over backwards to provide you the service and the reliability that we are known for. But we need higher rates. Moving on to Stolthaven. This is a beautiful picture of our terminal in Houston. It really is, you know, it's difficult to see the size of the land, but if you look on the left-hand side, you can see the East property land, and this is the area for expansion, including all the way up, the closest part of the picture. And you can see our jetty number 11, where Stoltzship is. Then you move one, two, three, four jetties to the right is our other two jetties. And this is the land where we are expanding our terminal. So we have ample land to do this organic growth that we're planning on doing. The improved results is driven by higher rates. So we had particularly high rates in the US and in Brazil. We had slightly lower operating expenses, but that was primarily due to one-offs. and we had higher A and G costs. And you can also see that we have higher A and G costs in each of our divisions. And that is driven by the salary adjustment that we did at the beginning of the year. But we also did give a one-off payment to the, what we called the lower bands in our organization to help them manage the cost of living. That brings the operating profit for the first quarter up to 25.1 and that's up from 20.8 in the previous quarter. Stable demand but lower throughput volumes. Now we are seeing a very strong demand in the US Gulf. There's a shortage of space in the US Gulf. We are building, I think we announced previous quarter, we're building additional capacity and the board has approved that we're building additional capacity both in Houston and Orleans. If we wanted to, we could have already filled those tanks up already. So that's in the process. We are achieving a double digit increase on the renewals that we see in Houston and in New Orleans. European terminals, the demand is actually recovering. Utilization is stable, but lower seasonal throughput in volumes. The demand is recovering is because The European market is becoming an import market. The energy cost in Europe makes the manufacturing uncompetitive. So it's more competitive import. So the local market, the European market, instead of being supplied by European manufacturers, they're being supplied by imports. So we are seeing a pickup in inquiries for additional storage in our terminal in Europe. The Asia terminals are varied, utilization and throughput volumes stable, but signs of picking up. And especially in China, we are seeing an increase in inquiries. So we do expect to pick up as China continues to, they have opened up, but as the economy picks up pace, we do expect an increased activity in our terminals in Asia. Steady. as always, but at the improving trend. Moving to stalled tank containers. Transportation revenue decreased by 14.8%, that's driven by lower transportation rates, so the container lines and trucks. And we had a lower demurrage revenue that decreased by 12%. as customers are returning the tanks quicker. So during the pandemic, during the logistical market, they kept the tanks for a long period of time. They used their storage. They wanted to build up an additional kind of inventory because of the unreliability of the logistical bottlenecks. In the later stages, it's been a slowdown in demand, so that has caused them to hang on to the tanks longer because they used the product, took a longer time to use the product. Now they're starting to re-deliver those tanks quicker, and that's why the German revenue is down. When you have lower transportation, you also have lower move expenses. High repositioning expenses slightly are up, and lower other operating expenses are 1.6. 39.3 operating profit, that's down from 44.9. I stated in the earnings release that it's holding up surprisingly well. I would say that, as I said in the previous earnings call, we're going back to a normalized scenario in that industry. We are actually seeing east of Suez, so that's Middle East, India, Asia, very strong volumes and margin improvements. It's picking up significantly. We are also seeing a pickup in Europe. The only place we're not seeing any pickup is in the US, but we're seeing a pickup from Europe, but from very low levels. Okay, the merge level decrease of supply chain. Demand in food grid sector remains strong. have guidance for going forward. You know, what is normal? I kind of remind you a normal quarter for for STC was between about 40-45 million dollar EBITDA per quarter. So that's what normal. I'm hoping that we're going to be able to hold on to the current market and that's going to slow down the decrease to normal, but just to give you an indication what normal is, 40-45 million dollar EBITDA. Moving to Stoke Seafarm. A good quarter again this Christmas season, higher turbid sales. The volume was up by 13.3%. However, the price decreased slightly by 1.8% and the same with salt prices. Salt volume was up by 5.7%, but the prices also went up by 3.2%. Now operating expenses increases as a result of higher volume. Our OPEX per kilo was down by 7.5% because we had a fantastic growth during the quarter. The team at Seafarm, there's a lot of writing about land-based recirculation agriculture. I've got to remind you that we've been in this business for 30 years, recirculation we've developed over the last 20 years. It's up and running, it is working, and these guys are really in control of their operation and conduct their costs. The fair value adjustment of biomass was 2.4 million loss compared to with a loss of 1.8 million in previous quarter. Reflecting volume and price impact on inventory levels. I remind you also what we now call the Stolten Nielsen investments. The strategy here is to use Stolten Nielsen's platform knowledge in each of our respective industries to make investments where we think we have a good knowledge, we can create value, and we see opportunistic investments that we can take And hopefully one day also find an additional leg for Tristan Nielsen to stand on. So this is our portfolio. It's currently at $202 million. That's why we're presenting it. It's significant. It's over $200 million. We participated in the IPO of Pool Company. We made a $10 million investment. We have sold that investment and booked it but a gain of two and a half million dollar profit. So we no longer have a coal company position. We also have what we call Stolt Venture, which was established last year with the aim of investing in sustainable technologies that will contribute to the decarbonization and support our core business. We have made some small investments. These are just know products that we are being presented for our business and if we see that those things are working or those new technologies can be a benefit for us in the industry we take the opportunity to see if we can invest in it too uh we continue to maintain uh our office shares it's been a good investment 8.3 stake uh so yeah then moving on to the financial i give the laptop to Jens to take you through the financials.

Thank you very much, Nils. As always, I will remind you that our fiscal quarter is skewed and the first quarter runs from December 1st, 22 through February 28th, 23. Also, we have posted the materials, the earnings release, the interim financials, as well as this presentation. on the company's website. So you'll find that at www.stolt-nielsen.com under investors. Moving on to the net profit, Niels has already covered really the operating revenue and to get exempt also the operating expense. The only thing to add on the ANG, is also impacted by about $2.5 million FX. The depreciation Nils mentioned is related to the increase in residual values and that $2 million differential will carry with us through the year. So $2 million a quarter impact on that. Then you will see that the loss on sale of assets versus a gain in the prior quarter had a swing impact of 4.4 million, and that was related to really gain on the two ships sold in the prior quarter. That gives us an operating profit of 142.1 million versus 132 last year. And then moving to below that line, you can see the net interest expense was down slightly. That is driven by somewhat higher interest rates in current environment, but also tied to a reduction in our overall debt levels, and hence an $800,000 reduction. We had a slight FX loss down marginally from the previous quarter. And then the income tax expense is tied to the higher profits at Stolthaven and Stolseafarm. And also there was a $3 million tax credit in the fourth quarter that contributed to that swing. That gives us a net profit of 99.8 million up from 95.3 and an EBITDA of 213 million up from 196. So we've now breached the quarterly $200 million mark.

Moving on to capital expenditures.

So far in 2023, we have spent $47 million. we have remaining $249 million for 2023. And what we mentioned last time was that it is an ambitious program. The difference from the last time that we spoke was the expansion at Houston and New Orleans that Nils mentioned. And you see that in the Stolthaven terminals, capital expenditures having increased to 101 million remaining this year and the bulk of it coming in 2024. And this expansion will also possibly drag on into slightly 2025. Stalled tank containers reflects new tanks ordered that are currently being delivered into the fleet. And then Stoll Sea Farm is ongoing expansions and preparations for expansions, including land purchases. For stalled tankers, the 71 million, that reflects progress payments on barge that's to be delivered, but also to ships, the 15,000 tonners that were announced about a week ago in the press that we are acquiring to secondhand ships that are each 15,000 deadweight tons and scheduled to go into our Caribbean service. Moving on to the cash flow. You see the operating cash flow, the cash generated by operating activities is down this quarter, and that is driven by changes in working capital. And it's really tied to the profit sharing payments that were made in this quarter, but accrued in the prior quarter. So therefore we're slightly down due to that swing. But if you were to exclude it, we would have been slightly up. Interest payments are down. Again, we do tend to pay. We had certain loans that are on six month interest payments, whereas the bulk is on quarterly. And those that are on six are typically paid in the fourth quarter and the second quarter. So they tend to be slightly higher. It brings us to net cash generated by operating activities of almost 150 million in this quarter compared to 164 last quarter. Capital expenditures, that includes the CAPEX that you saw on the previous slide, plus money spent on dry docking of ships. So that's 54.4 million down from 68 million in the prior quarter. Also, Niels mentioned we have sold the cool company shares, and you see that 11.7 million in the sale of shares And in prior quarters, we have actually been buying shares. So it's a nice turn. So net cash used in investing activities was down to 43.7 million, down from 78 million in the prior quarter. And if you look at the financing activities, you see we have repaid about $46 million of debt and capital leases. And you have the dividend that was paid out in December of 53.6 million. We expect if the AGM signs off on the dividend that was recommended on February 23rd, then that will be a payment in May, and that will be about $67 million cash outflow during May. But for first quarter, it means we use 99 million in financing activities. And it gives us net total policy cash flow for the quarter of 6.3 million. And that brings our cash and cash equivalents up to 158 million at the end of the quarter. And if you look at the bottom right, you'll see that comes on top then of our available revolving credit facilities of 321 million. So for a total of 479 million in available liquidity. Our debt has been reducing steadily, even though we have been investing as well. And that's really credit to the cash flow generation capability of the businesses. You see that in the top left quadrant. Average cost of the debt is, as one would expect in today's interest rate environment, creeping up slightly. We're at 5.13% average for the first quarter. But if you keep in mind we have been fixed almost 80% and that's why we've been well shielded from the increase in rates that we have seen. At the bottom part you will see our debt maturity profile. The first quarter has the 33.7 million has already been repaid. The next significant one we have is the June maturity of a bond $132 million. With that, that was a bond that we did back in June of 2020 during the pandemic. Interest rates were low and we have a fixed dollar rate on that of 5.19. And also then six months later, we have the S&I 08, 141.5 million to be repaid and that has a fixed coupon of about 5.4%. So to the extent that we need to draw on the revolving credit line, to pay those off, that will see our borrowing cost or average cost of debt increase further as it stands today. The Singapore loan that is either 101.7 million that is currently in the process of being refinanced. We expect to conclude that probably during the third quarter. um and that will also most likely include an increase in the facility amount to about 200 million dollars um and in addition to that with the delivery of the two 15 000 deadwood tons we have secured or in the process secure in financing about 38 million for those and for the barge to be delivered during the second quarter we also have uh are in the process of securing financing for that. So to combine those two would add about $50 million in debt. Moving to the next, as you see, the financial covenants are improving. Both debt to taxable net worth on the top left at about 1.07, EBITDA to interest expense at 5.85, Both improving, the limits are 2.25 for the debt to tax network and minimum 2 for the EBITDA to interest expense. This and the net debt to EBITDA, which is now down close to 2.5, are driven by the steadily improving EBITDA that you're seeing on the bottom right-hand side. For next quarter, the second quarter, you will see that the first quarter 22 of 159 will drop off. and we will add a quarter at a higher level, so that we'll see our last 12-month run rate improve significantly, is our expectation. Moving over to ESG, on the top half of the screen, you have our AER ratio that will show you every quarter. At the end of 22, we were at 10.91, which constituted a 30.4% saving, We have not moved much away from that. With the stronger market, there is a tendency to speed up slightly, so we are maintaining that level. We still are very confident of reaching our goal of a 50% emissions intensity reduction by 2030. Between now and then, a number of older ships will be recycled, and that will be replaced by newer tonnage, presumably, and that would help drive down the ratio. I'm very happy to also say that Stoll Tankers earned a gold medal for Ecovades. That's the sustainability rating agency, which is a first for Stoll Tankers and something we're very proud of. And to that tune, Stoll Tavern Terminals and Stoll Tank Containers have both maintained their silver rating and improved on that. So it's a good performance by all the three logistics businesses. In Stoltz Seafarm, there is ongoing improvements targeting zero waste to landfill, as well as the reduction of the fish contents in our feed, which they are continuously working on developing. And with that, I would like to pass it back to you.

Thank you, Jens. So we are continuing this strength across all of our businesses. Taking into consideration the first quarter usually is a slow quarter, we are pleased with the performance in the first quarter. Slow tankers, the improved COE terms are now starting to show in the financials. But when we show you a 50% increase on average on the contracts that we renewed, there is of course, a risk to our strategy. Being market leaders, we need to push, and we are. As a result, we are losing some contracts, which we wish we hadn't lost, but that's part of it. So yes, we're pushing. We believe we will be able to replace the lost contracts with other business. And I feel, again, comfortable with the supply side of the equation, but There is, of course, risk to it if something should happen with the global economy. But I think we have to do it. Stolthaven terminal continues to see steady and higher utilization, and we are achieving higher rates on the renewals. So tank container results are resilient as capacity opens up and margins come under pressure. So even though we had a phenomenal, fantastic year in 2022, I think that 2023 and beyond is still going to be a healthy performance from STC. Seafarm, we're expanding in new markets. As we produce more fish, we are pushing, really focusing on the marketing side of the business. Jens showed you the strong balance sheet and liquidity position, which has allowed us to pay higher dividends for this year of two and a quarter And hopefully that trend will continue going forward. That completes our presentation. We will now open up for any questions that you may have. And I see that we have received two questions. Somebody called JW asked, Oddfield say they will sell ships until 30 years age. Does Stolt plan to do the same? And the answer is yes. I mean, we have historically sailed our ships, some have actually gone beyond 30 years. And depending on the new building capacity, we most likely have to sail them until 30 years. We are at least maintaining our ships as if they are going to sail until they're 30 years old. Then back to Lansk, thank you again for another stellar quarter and your honest and upbeat outlook. How many of the COA renewals in the Q1 were fixed price option that were declared? And how many of your COAs have fixed price option attached? I'm not going to go through. I can say that very few have an option period and even less in the future. Already several years ago, we saw the order book And we were expecting, we were just waiting for that balance to happen, which is, you know, started in 2022 and is continuing in 2023. So we started already a couple of years ago, only extending our contracts by one year and not giving additional optional years. And that we are benefiting from now so that we are not locked into the pre, all of it. So very few have an additional option period and less so going forward.

Somebody called Anonymous.

When do you expect the new CEO will be selected? We are continuing to search. We have some very good candidates that are being interviewed, and hopefully we will be in a position to announce the relatively soon. But as I stated earlier, this is better to use the time necessary to find the right candidates. Petter Haugen from ABGS Nordkøyer. If treating non-renewed COAs as spot, what is your spot exposure for Q1 and Q2? If treating non-renewed, we'll come back to you on that one. Can you find out? So if we assume that all of the ones that haven't been renewed, that we don't renew them, what is our spot exposure? But I think we will be coming to 50% spot, but we'll come back with the numbers shortly. Can you comment around recent news about vessel purchases and if there are any changes to your communicated fleet renewal strategy and consolidation slash spinoff? So over the last two, three years, we have been active in the second hand market and been able to pick up two night ships. And we just recently announced another two ships still at a discount to the new building equivalent. But today, we don't expect to be able to pick up any further second-hand ship because the prices are what we think is too high. So if we're going to pay a high price, that high price would be for new buildings. And with a fleet of 160-plus ships, we need to build ships, and we will order new ships eventually. Our consolidation. and spin off. I think I said this in the previous quarter. In this strong market, I don't think there's this appetite for consolidation, but we are open and we continue to look and look at opportunities. And we are still committed to an IPO to be able to achieve or be in a better position to achieve further consolidation. The exact timing, we are ready. It's just a matter of when the timing is right. Both the shipping market and the equity market needs to be aligned. Our balance sheet is now getting stronger and stronger by the day, so we are in a position now to do an IPO, and it is something that we discuss each quarter. quarterly board meeting.

So when we make a decision, we will, of course, announce it. COA.

Petter Haugen asked a question about spot exposure. If we don't renew any of the COAs that are under negotiation, we will come back to you with that answer once we have calculated it. I don't see any further questions. So that completes our earnings presentation. I thank you for your participation, your support, and I hope to be able to present to you good results in the second quarter. But I gave you kind of an indication where I think the market, so pretty flat for the same or slightly up for small tankers. There is slight improvement in terminals, a slight improvement in CFARM and a slight decrease in STC. That's kind of the guidance without saying specific numbers. That completes our presentation. Thank you very much for participating.