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.