Stolt-Nielsen Ltd Ord

All right. Good afternoon. Good morning. Thank you for joining us here today in London for our second quarter 2023 earnings presentation. Together with me, as always, Jens Gunnar Hegge, our CFO. We will go through, as usual, we will go through the overview of Stolt Nielsen. We will go through each of the businesses. Jens will take you through financials, and then we will open up with Q&A. at the end and the Q&A is through this chat function, which you can then submit your questions and we will try to answer all of them at the end of the presentation. Moving on to the highlights for the quarter. Unfortunately, we had to take a loss provision of $155 million. related to the Flaminia net of tax, 115 million on the net profit, impact on the net profit. So if you look, when we include the net profit, our EBITDA came in at just below 80 million, the operating profit at 10.1 and the net profit at 8.3. uh and it doesn't affect the net free cash flow but net debt to ebitda at 2.91 uh as a multiple of ebitda um but i'd like to to to talk more about the underlying performance this was an event that happened in 2012 i'd like to talk about the underlying performance of the company for the quarter because we did have a fantastic second quarter. The EBITDA came in at the record high of just shy of $225 million for the quarter, giving us $113.3 million net profit. The EBITDA of 224.6, that was up from 213 previous quarter, was, we will go through the business later, but just highlight, it's higher spot volume and contract freight rates, Higher throughput volumes and improved results from our joint venture in terminals. Tank containers with lower transportation margins, but where they were able to do a higher number of shipments. And still Seafarm, we increased the sales volumes offset by higher operating costs as a result of the higher inflation. Again, I will talk more about that as we go through the presentation. The free cash flow decreased to 116. That's down from 133 in the previous quarter. And that's as a result of the acquisition, we bought two secondhand ships in the quarter. We paid the final dividend for 22 of $1.25, and that was paid out in May. And as we stand, it's $423.4 million of available liquidity. If you don't look at the net profit compared to the first quarter to the second quarter, you can see that was a higher operating profit from tankers of almost 10 million, higher operating profits in Stolthaven for 2.7, slightly higher operating profit in SDC, slightly lower operating profit of 1.6 from Seafarm, a lower loss from the gas investments, lower corporate you know, pretty higher FX of 2.6 and lower incomes tax of 3.7, bringing us to 113.3. But then we have the net impact of the Flaminia provision that we took of 105 million, bringing the profit down to 8.3 for the quarter. Moving then to Stolt Tankers. Higher spot volumes and COE rates was driving the earnings. The operating profit up, the increased trading results as spot volumes improved by 16.9%, while COE volumes were down 9.7. COE rates were up by 9.4, and the spot rates in the quarter were down 5.5. We had a higher net bunker cost driven by lower bunker surcharges as bunker prices decreased. And we had a higher owning expenses mainly due to the additional tonnage that we added in the quarter. High depreciation due to dry docking of ships. And we had slightly lower joint venture income in line with softening demand in Asia Pacific. bringing the operating profit to 96.8 for the quarter. So this is the same chart we showed last time. The improved sale in revenue per operating day was driven by higher spot volumes and better CO8 rates. reflecting the contracts that we renewed in the end of last year and the beginning of this year, is now starting to come through, causing that the COA volume that we lifted, the new rates were included in the sale in this quarter. The spot to COA volume mix for the second quarter was basically 49.8% spot, 50.2% COA. Now if you ask us what our portfolio is, I would say that our portfolio of COAs is approximately under normal liftings on the COA nominations. I would say we're around 55% COAs and 45% spot. But the COA nominations were down, so below normal, and that was then replaced by spot volume. I remind you that the $1,000 a day change in sale then is approximately 6 million change in net income per quarter. The second quarter was quite light on COA renewals, but the contracts that we did renew were on average up 55.8%. And then we indicate what we see today, and I'll talk a little more about the market after, but what we're seeing today Because of the softening in the, well, as a result of the slowing global economy, we are seeing a slowdown in volume, COA volumes, we have seen. And we're also seeing a softening of the spot rates. So we are giving a guidance of approximately between 5% and 7% reduction or decrease in the sale then for the third quarter. So five to seven down from the current reported level of 30,880. The total volume covered by a bunker close was at 53.3% year to date. And the bunker surcharge revenue was down by $5.3 million as prices for the fuel dropped and our COA ratio decreased. The cost of the bunker we consumed was down by only 4.7 million in a net increase in bunker cost of 0.6 million. So again, market highlights. Let's talk about where we are and where we think it is going. You can clearly see on the right-hand side here that it has been coming off in most markets. But based on the latest what we're seeing right now, we're actually starting to see a leveling off, both on the COA nomination in volume, but also on the rates. To predict what is going to happen going forward is quite difficult, because it's all driven by the global GDP. So I think that you are as well positioned as us in predicting what is going to happen to the global economy. But we do have around 55% COA coverage, and I'm very proud of what the team has been able to achieve in both the rates that they have secured under that portfolio, but also the terms and conditions that has been tightening in. So I feel quite comfortable that 55% COA and the spot market will you know we will always always be able to fill up our ship it's just a matter of at what price we will be able to capture and we are again seeing you know in recent weeks that it's it's a bit of leveling off uh uh the fundamental remains the same there's no new additional ships coming into this segment for the for uh you know next two two years so i i don't think it is necessary for us to to kind of, sorry, and also the contract renewals. We have a very light contract renewal in the third quarter. The contract renewal process starts in the fourth and the first, fourth quarter and the first quarter. So I don't see any reason for us to start chasing any additional contracts at this time. We have a nice contract portfolio as it stands. The fundamentals are in our favor. So as long as we don't have a total global meltdown of the global economy, which I don't think is going to happen, i think that we will position for 2023 and i do expect that that we will continue to see the strong earnings and we should be able when the contract renewal season comes to to continue to renew it at healthy at healthy levels moving on then to stolthaven terminals uh steady steady improvement which is positive so the operating profit for the first quarter was 25.1 we had slightly higher revenue we had slightly lower operating expenses slightly higher depreciation and a better higher contribution from our joint venture bringing the operating profit to 27.8 million dollars EBITDA up to 43.7, that's up from 40.6, utilization steady at around 97%. So robust utilization and throughput seen across all terminals during the second quarter. Yes, we are also seeing uncertainty seen by chemical producers across all major regions, but we do expect an uptick in the Chinese consumption to eventually come through. Analysts are kind of saying towards 23, end of 23 and beginning of 24. But the terminal business is steady. The contracts are 12 months minimum. Some are much longer. So the terminals are contracted out. They're at 97% utilization. The only thing that can really influence the quarter-to-quarter earning in the short term is the throughput, but it's a relatively small impact, even if the throughput goes below, goes down. So I do not expect any big change in the earnings coming from terminals for the next six to 12 months. So steady as it goes, nice performance, nice utilization. And you see that the the EBITDA and the margins are improving. Stored tank containers. Okay, so let's talk about before the provision. Operating profit came in the first quarter was 39.3. So we had lower operating revenue, decreased by 2.4%, and that was driven by lower transportation rates and lowered that merged revenue. Lower move expenses. The low move expenses as a result of the 21.6% decrease in the ocean freight rates that we paid the container lines, and that was partly offset by the increase in inland freight and higher cleaning costs. We had a slightly higher repositioning expense due to more repositionings, and we have improved JV inventory results and higher gain on sale of assets. So the operating profit before the provision came in slightly higher at 39.7. And then unfortunately, of course, we had the provision related to the Flaminia, which brings the operating loss to 115.3 million for the tank container division. Outlook, we've been talking about the softening or the increased competition in this market as the As the bottlenecks in the logistical chain has eased, more tanks are available. So shipment takes a shorter period of time. Containers are coming off the merge. So there's more tank containers. And if you then add on, if there's a weakening of, we don't see actually a weakening of shipments, but there's actually more containers coming available. So we are seeing what we call the normalization of the market. which is still at the healthy level, but we are now starting to see it and it's coming through. So the second quarter, I saw that we beat market expectations, but we are clearly seeing that it is, we're able to hold the shipments up, but the margins are under pressure. And I think that, again, I said it last time, but this time I really think it's going to happen, that you will see the third and the fourth quarter not as strong as the first and second quarter, but still at healthy levels. The focus on the organization, of course, we have a platform, we have an advanced digital platform, is to push volumes through. So, you know, get the volumes, we have the get the volumes through on the fixed cost. And I think that we will see, you know, even on the competitive environment, we'll see, continue to see healthy earnings in a historical perspective. So if you take 22 out of the picture, or the first, also first half of 2023, and you look at the historical, what we made, I think we'll be going back to historical earnings, quarterly earnings in the STC. Moving to Stoltz C Farm. So the operating profit in the first quarter of 23 was 3.2. We had higher volumes of turbot and higher volumes of sole sales, but the operating expenses increased as a result of higher volume for turbot and higher energy and feed costs during the quarter. So quite a bit of inflationary pressure, higher operating expenses, expenses also due to the higher electricity. You've got to remind you that we are pumping water. These are land-based farms, flow-through farms, so we pump water up. And so it's quite energy and electricity. The increase in electricity prices also caused a higher operating expense. Slightly higher depreciation. AMG is also up because we're building up and expanding our sales organization. Higher and lower other income. some fair value adjustment bringing it down to 1.5 million operating profit for the quarter. The outlook, the fundamentals for this segment is actually quite strong. Demand for both species has peaked, has picked up after a slow January and February season. Why is January and February slow? We have a pickup in Easter, but then really we are now going into the summer season and we're seeing healthy demand and prices for both turbot and sole going forward, especially during the summer season. So we are actually, even though there's an inflationary pressure and there's a question about the slowdown, we are seeing that the consumers are out there and they're willing, they are, There's no slowdown in demand for both soil and turbine. Moving to Stoltening's investments, levering our industry knowledge and expertise. This is just a reminder that we have what we call Stoltening's investments. We have our exposure and investments in these various companies, which is the book value of these assets is at $194.2 million.

uh not much more to say about that that completes my part of the presentation i'll give it over to jens to take you through the financials okay thank you very much uh nils uh i'd like to as i always do to remind you that our fiscal year is uh skewed starts december 1st every year and ends november 30th every year which means the second quarter went from march 1st through may 31st um Also, as a reminder, we have posted this presentation as well as the earnings release and the interim financials on the company's website, www.stolt-nielsen.com, under the investor section. As Nils has talked through, A lot of the numbers, I'll touch just on a few, and I'll focus a little bit more on the cash flow a bit later, considering the news earlier in the week. The revenue, as you see, was up, reflecting the underlying performance. It's really due to the tankers, but also an improvement in both terminals and Stoltz Seafarm, Seafarm driven by the higher volume, as Nils mentioned, whereas the opening expenses remained relatively flat. You then have the claims provision of $155 million, and under that you see there's a slight increase in depreciation, and that's driven by some more calendar days in the second quarter over the first quarter, as well as assets that were acquired that are now being depreciated. Share of profit of joint ventures and associates were up, and that's predominantly in Stolthaven terminals, from our Korea terminal. And you'll see below that administrative and general expenses are down about 11 million. That reduction is related to profit sharing driven by the provision that was taken earlier this week. That brings us to an operating profit as reported, as Nils mentioned, of 10.1 million after taking the provision down from 142.1 in the prior quarter. Net interest expense was slightly up, and you see that's driven by the continuing increase in interest rates in the world at large. We're now up to 5.26% on average, up from 5.06% in the first quarter. FX loss was flat, but you see below that there is a tax credit related to the 155 million write-off. We took about a $40 million tax credit, and that's why you see a positive tax for the quarter of 28.7 million. And that brings us to a net profit for the quarter of 8.3 million versus the 99.8 million in the first quarter. Year-to-date, you'll see we're at 108 million, slightly down from 110.9 million in the first half of 2022. So if you just take back in the provision, you see that the first half of 2023 has actually been quite a stellar six-month period. EBITDA is just shy of 80 million after provision, and that's down from 213. Capital expenditures continue and I think what is worthwhile noticing that despite the provision that was taken, it has not stopped us from our ambition in implementing our strategy and we still have the balance sheet and the liquidity available to pursue the strategy and the growth as we have laid out in our plans. During the quarter, we spent $82 million on capital expenditures and included two ships that were bought, the Stolt Condor and the Stolt Toucan. It included also the Stolt Ludwigshafen, the quite technologically advanced new barge for the Inland European Service. We also had investments in terminals, including some maintenance projects. You will see also remaining for the year, we have still quite a bit in tankers, terminals, and tank containers. Tank containers is purchase of additional tanks that will come throughout the end of the year, whereas terminals is predominantly capacity expansions at our Houston and Orleans terminals, which will stretch into 2024 and possibly 2025. which leaves about $194 million remaining for this fiscal year. That's ambitious, and it could be that some of that will be pushed into 2024, but at least this is on the plans and we are pursuing it. Then going on to our cash flow, you'll see cash generated during the second quarter was up, driven by the improved on-the-line performance of the businesses. partly offset by an increase in working capital. The interest paid is down slightly, and that's really quarterly variances because some quarters have a half-year, some loans have half-yearly interest, others quarterly interest. And we then have net cash generated by operating activities of 177 million, which is up from 149 million. Capital expenditures, we saw from the previous page, was about 80 million, just over 80 million. And on top of that, you have dry docking of ships. So that brought it up to 92 million, up from 54 million in the first quarter. And that means the net cash used in investing activities was just slightly, it was about 48 million this quarter over the previous quarter. We didn't issue any debt during the quarter itself. I'll come back to what we did subsequently. But we repaid about $50 million on debt and we repaid $13 million under our capital leases. So that's a reduction of just in excess of $60 million during the quarter, which means here to date our debt is down about $110 million, including leases. And we also paid 66.7 million in dividends on May 10th, as Nils mentioned. So that brings our total cash flow to a negative 42.8 million. And we ended the quarter with cash and cash equivalents of 115.6 million. And if you look on the right-hand side at the bottom, you can see the development of our liquidity. We have 307 million available under our revolving credit lines, all of which are completely unutilized. And then it's 115.6 million in cash and equivalents for a total of 423 million. Going on to our debt profile. So it's been an active June following the month end, as Julian has been very busy in booking in new loans. On June 16th, we renewed the financing that is secured by our Singapore terminal with a new seven-year, $280 million term loan, which, after repayments of the previous loan, provided us with about 100 million US dollars in additional liquidity. Then at the end of June, we received the proceeds from the Stolt Ludwigshafen, the barge refinancing, and we turned around on June 29 and repaid SNI 09, which is the second to last bond that was outstanding, 132 million, using available cash on hand. So those were really the main liquidity events following the quarter. And then as of June 30th, our liquidity, readily available liquidity, after the bond repayment was $351 million. I just checked as a close of business yesterday, this is now up to over $370 million, really reflecting a strong cash generation by the businesses. And I think this is important to bear in mind when you consider the loss provision that we took. The company is in a strong liquidity position, and we do have a strong balance sheet to carry this. You see the maturity profile at the bottom, and the third quarter now excludes that bond that we repaid. The next big one is the bond in the first quarter of 2024, S&I 08. And thereafter, we don't have anything until the second quarter of 2025, when our US private placement secured by the Houston terminal matures. This leaves us with only one bond in the market. And we have been very happy with the ride we've had in the bond market. And we are contemplating going back to the market with further bond issues because we like to have our presence in there. So we will possibly come back to that going forward. Just finally, our covenants, the two EBITDA covenants, net debt to EBITDA and EBITDA to interest expense, are both impacted by the loss provision and the low EBITDA in the second quarter. But still, all covenants are at very healthy levels, and I would expect this to continue to improve as we go into the third and fourth quarter. And with that, Nelson, it's up to you.

Thank you, Jens. Just key messages. Before the provision, we had a record quarter, very much driven by the record performance by Stoltankers, which had a sale in of close to $31,000 per day. Stoltank terminals continue with high utilization and the focus on rates has continued to drive and improve the profitability of the business. Strong push for volumes in SDC, still tank containers, but it was offset by the reduction in margins. And good sales performance in Seafarm, but also by higher operating costs. We do expect that there's going to be a softer second half of the year for the third and the fourth quarter. But we are well positioned in each of our businesses The fundamentals are in our favor in each of our businesses. And I think with our contract portfolio in tankers, with the contract and the steady long-term contracts in terminals and the excellent platform and the well-positioned position that we have in the STC market, I continue to see that we are going to be able to have healthy earnings, but not at the same level as the first half. Yeah, that completes our presentation, and now we will open up for questions, which you then have to send in by chat. And I will try to answer each of the questions. The first one, do you still allow on-the-deck carriers of explosive containers? It is not us who stole the container ships, so we buy our services. We declare the content of the container, and it's up to the container line where to store that container. How will foam mineral ruling affect tanker IPO, if any? Do you invest the sentiment? This was an event that happened in 2012. As you can see from our balance sheet, the most important part for us is, of course, to learn from it and make certain that we learn from it. I don't think that the Flaminia ruling will affect IPO. We will do an IPO at the right time, and we will advise the market when we are at that time. Can you say anything on the amount of renewals remaining for 2023? I assume he's referring to the COE. So, again, the lightest period, I would say, is in the second and the third quarter. And the heavy period, or if you can call it heavy period, is in the fourth quarter and the first quarter. So, I would say that Maybe it's, if you look at the third and fourth quarter, I would say combined it's between 25 and 30% COAs that are going to be renewed in that period. Can you talk a bit around your COA coverage and strategy going forward? Is the downward trend in COA strategy to position for rebounding spot market, or is it more about resistance from counterparties in accepting higher rates? Are you comfortable with around the 50%, higher or even lower 50%? So historically, Stoltank is, we've been around 60, 65, 70% COAs, but we consciously said that, okay, we need to be the market leaders and we pushed through hard. I am comfortable, and now we are at around 55% instead of 65 to 70%. I am comfortable in that position, even though that's not the historical percentage that we have had, because the fundamentals is in our favour. There are no new ships coming into this segment, both, I would say, both in the chemical tank, but also in the MR segment that carry chemicals. They're relatively low order book. So the main risk that we are without strategy is, of course, if the global economy totally collapses. But I don't think that the global economy will totally collapse. I think that we have historically seen that the chemical market is quite resilient. There can be a dip, but it's pretty damn steady at 2-3% growth. It's a multiple of global GDP. So therefore I am comfortable with the 55%. And I also don't think that it's necessary for us to chase any COAs now during the second half of the year or aggressively go after new business because we will be able to fill up the ships with spot volume. And I do believe that this market will recover because of the supply situation. I hope I'm right. Again, it depends on what you believe, how the global economy will, I think there's a, you know, have we reached the bottom now? And we'll start going up. We'll see. But again, 55% of our portfolio is now COAs, fixed at relatively, you know, quite solid renewals that we've been able to achieve in the fourth, first, and second, third, first and second quarter of this year. so i think that we are in a pretty good position so for us of course if there's business that comes our way and the ceo at rates that we accept then of course we will look at it but otherwise i feel quite good with our current portfolio will flaminia destroy q4 dividends So I don't decide the dividend, but I would think that if the company performs, you know, we have made a year-to-date net profit of $108 million, and I do expect that we will continue to make, you know, healthy profits in the third and the fourth quarter. So I don't see a reason why the company is not in the position to continue to pay dividend. You know, again, the level, I don't want to comment upon, but I think we have the liquidity, we have the balance sheet, and we have the earnings to justify dividend. Can you talk about the timing of taking the food loss provision in Q2? What is your view and expect the timeline on the insurance claim and likelihood now which has been lowered in the Q2 report? There's quite a bit of limits of what I'm in a position to say. We took the provision this quarter It's all based on advice that we get from our advisors. So at this time, we have taken 155 million provisions. I hope that that's a conservative number. It might be less, but it might be also slightly higher. We don't know yet. It's too many moving parts. There's limits of what I can say. But needless to say, we will do everything possible to reduce and mitigate that number. The volumes in tank containers are holding up very well. Could you share some light on how you see this develop through the next quarters? Do you see any recessionary pressure materializing? So the volumes are holding up, and that's what really the team is working very hard on, is making certain that we get the volume. And they have been successful, and we are seeing the volume is out there, but there is pressure on the margins. I think that there are certain markets, so we have said that Everything east of Suez is very active. Middle East, India, China, very active. And then we have seen a very low volume in Europe. Actually, that is starting to pick up and we're seeing a kind of stable in the United States. What we have seen recently is there's been a slowdown in China. There's been a pickup in Europe, but from a low level. So it's too early to say, you know, what, what, I'm actually optimistic about China going forward. I don't think it will slow down much further, but again, it's very much driven by the global economy and the global trade. I've given you my comments, what we're seeing in STC. The volumes are still there. We're chasing that volume, but at the lower margin. Is it fair to assume your effective TCE is the same for the COA book and spot now as your volumes are 50-50, or how would you think the average spot rates versus the average COA rates? You can quite easily say that the spot rates are still above the COA rates, but they're getting closer. Jens, assuming that the compensation from MSC Flaminia will be 155, can you elaborate on the cash flow effects, impact from taxes and insurance, and expected timeline?

So the 155 represents the amount in excess of insurance covered. We have previously, if you look in the annual report, had a provision for both the claim on the liability side and the recovery from the insurance providers on the asset side. These are pretty balanced. So the 155 is what we now think will come in excess of the insurance available. The cash flow will be determined by when this becomes payable. And again, as Neil said, we don't really want to comment too much on that. But we are sitting, as you have seen, with the liquidity available. um then subsequently we will get uh tax credits deferred tax credits that would uh benefit the cash flow from the cash tax perspective in future periods um so first you have whatever settlement amount there will be once that quantum has been decided and then later on we will get the tax credit okay uh

How much capacity do you expect to add at the New Orleans and Houston terminal? Are these backed by contracts from existing clients? Should we expect utilization to stay in the high 90s and the margin does remain as strong as they are? So we are adding approximately 150,000 cubic meters combined in Houston and New Orleans. I would say that the market is quite strong both in those areas. It takes a while to build them, but yes, you should expect the same kind of margins and the same utilization as we deliver and the tanks are ready. We have a lot of leads and a lot of interest, but we have not contracted out that capacity yet. Thus, the ambitious CAPEX program, and now Flamilje Hytte, Flaminia, hit, reduce your Stolt-Nilsson venture program, the stakes in Oldfield and Gorale, any update there? No, they don't, do not. As I stated, it does not change our strategy. It does not change our growth ambition. And that is kind of, it's horrible, this ruling. I think it's, I don't understand it, but we're working on it, but it kind of shows our strength that we've been able to take a hit like that and still be able to pursue our original strategy. What are your thoughts on the spot rates going into the winter? Will the strong MR market have a positive impact? Are there any upset risk to tankers? Fourth quarter earnings compared to the Q3 guidance if spot rates covers in the second half? Absolutely. I do expect the strong MR market. So I wouldn't be surprised that kind of the spot rates recover. And we have, as you see, 45% of our spot exposure. So that kind of will impact. We will be able to capture, as soon as the market turns, we will be able to capture a bigger part of that quicker when you have more spot exposure. But remember, it takes a while for those, you know, you book it and then it takes a month before, you know, they book it up to a month before. So it takes a while before you see the results. But at least with 45% spot exposure, but we are able to take the benefit much quicker than through the COAs. Okay, that was a lot of questions. I think complete the number of questions. Yeah, there's no other additional questions. I thank you for participating. I look forward to talking to you again in the third quarter. Again, thank you and I wish you all a good summer. Thank you.