Dampskibsselskabet Norden A/S (DNORD) Earnings Call Transcript & Summary

Hello, and welcome to the NORDEN Full Year 2024 Analyst and Investor Conference Call. My name is Elliot, and I'll be coordinator today. [Operator Instructions] And I'd now like to hand over to Jan Rindbo, CEO. Please go ahead.

Thank you very much, and we can go to the next slide, where I would just highlight some of the events for 2024. First of all, we delivered a group net profit of $163 million and a return on invested capital of 14%, and we did that in markets that were quite unpredictable and challenging during the year. We've had a lot of focus on unlocking our high portfolio values in preparation of what we expect to be near-term weaker markets. We have done that by selling vessels where we have locked in sales gains of $82 million in 2024. We have also increased our cargo and TC cover. And at the year-end, the NAV of Assets & Logistics stood at DKK 425 per share. We have strong capital allocation with focus on optimizing both returns and shareholder value. And here are 3 things to highlight. We are investing in expanding the NORDEN platform, and we did that mainly with the acquisition of Norlat Shipping. We have also optimized our vessel portfolio by investing into new modern fuel-efficient vessels, mainly in Capesize. And at the same time, we have returned $100 million during the year through dividends and share buybacks. I will now hand you over to our CFO, Martin Badsted, for the financial highlights.

Thank you. We made a Q4 result of $30 million at the end of the year and $40 million of that was profits in Assets & Logistics, bringing the full year result to $236 million, to a large extent, driven by sales gains and higher earnings coverage across both markets. In our FST division, the full year result was a loss of $74 million, significantly impacted by expensive cargo commitments in the first half of the year, as we have talked about earlier, and also difficult markets in both dry and tank in the second half of the year. Actually, the Q4 result of FST at $11 million loss was the best quarter of the FST performance in 2024. And the expected improvement that we have talked about earlier, we are indeed seeing, although that is now offset to some extent by lower tanker spot rates. We still consider it to be much of an onerous market, meaning that the difficulties of making good returns in the FST business is, to a large extent, offset by a very attractive market for the Assets & Logistics part, which you can see in their performance. Next slide, please. As Jan said, we have positioned ourselves for weaker markets near term, and we have actually seen that market development as expected. We've seen spot rates decline by 20% to 30% quarter-on-quarter in dry and close to 20% down on the average MR rate also quarter-on-quarter. And you will see in the top right graph, the 1-year TC rate is mirroring that decline. We have positioned ourselves to cater for this, both with the vessel sales, the time charter cover, but certainly also taking on quite a lot of cargo commitments in dry cargo, where we now have a short position for 2025, which in the falling market is proving to be quite good. Importantly, this is only a weaker market that we expect near term. In the long term, we still believe that a low order book and an aging fleet means we will have an attractive market beyond the first couple of years. For the end of January 2025, we had 9,000 open tanker vessel days, and we had a short position, meaning 7,000 dry cargo vessel days short, more cargo commitments than vessel commitments. Now I hand you back to Jan for a look at our business model.

Thank you, Martin. I would like to here highlight the business model and the flexibility that it brings having both owner and operator activities, and we have that across both dry cargo and tankers. And that enables us to, over time, generate superior returns, where, as we can see on the graph to the right at the bottom that we, during the cycle in our markets, have a best-in-class return on invested capital over the last 5 years when comparing to our dry bulk and tanker listed peers. And it's the ability to adjust our exposure on several parameters that is key to this performance. And when we look at this sort of more in the light of 2024, here, we have shifted more of our long-term market exposure from tankers towards the dry cargo market. And in terms of shifting exposure between asset-heavy and asset-light, it's key here to point out that the asset-light leases actually have in our portfolio today, 79 purchase options that actually enable us to become asset heavy in stronger markets. So there's a lot of potential asset upside even on the asset-light part of the business. And our ambition is to generate, relative to our markets, a higher degree of stability in our earnings and protect the downside risk, while also embracing the volatility to capture the upside potential in high markets. And this is very much something that we can do through all the optionality that we hold in our portfolio. Turning to the next slide. So in guidance, we are basing this on the current market outlook and the high geopolitical uncertainty, we expect for 2025 a net profit in the range of $20 million to $100 million, and this includes sales from already agreed transactions of $16 million. When you look at the underlying business units, then we expect in Freight Services & Trading, an improvement in margins in the dry cargo side, whereas the tanker margins are expected to decline due to weaker rates. But overall, in Freight Services & Trading, we expect improved margins compared to 2024. In Assets & Logistics, we expect to continue to benefit from high earnings coverage in both dry cargo and tankers at profitable levels. And here, we also have the upside of potentially realizing more sales gains from our asset portfolio. Turning to the next slide for the final remarks. So we have, at the end, a good result for 2024 with a net profit of $163 million and a return on invested capital of 14%. And here, the business model was really put to use with pressure on the operator part of the business in Freight Services & Trading outweighed much by high asset values and period rates supporting the Assets & Logistics business. The NAV for Assets & Logistics ended the year at DKK 425 per share. And we have reduced the near-term market exposure, both in dry and tankers to protect the downside volatility from the weaker markets. However, we do have a long-term positive outlook on the market with good fundamentals, not least an aging global fleet and a relatively low newbuilding order book, especially on dry cargo. And then finally, strong capital allocation. We are investing on 3 fronts, both into the NORDEN platform. We are investing in new ships, and we are also returning cash to our shareholders. And in 2024, we returned $100 million through dividends and share buybacks. That concludes the presentation, and I will now hand you back to the moderator.

[Operator Instructions] The first question comes from Ulrik Bak with SEB.

Just a few questions from my side here. Can you perhaps explain the earnings step down in Assets & Logistics in Q4 compared to Q3? Because when I look at the coverage profile that you provide quarter -- each quarter, it doesn't look very different, the Q2 coverage profile that you provided in connection with Q2 and the Q3 one. So I would have thought earnings in Assets & Logistics should have been similar, but I see quite a significant step down here. So what am I missing?

Ulrik, it's Martin here. I don't know if it's that particular thing, but maybe you're missing the profit and loss from sale of vessels, which was $20 million in Q4, but practically 0 in Q3.

Yes. But even adjusting for that, I see your EBITDA is down by some $20 million, right?

Yes, that's true. So I can't explain what exactly is in the capacity cover table, but we can have a look at it together afterwards maybe.

All right. But then actually along the same lines because when I then compare the forward-looking coverage profile for '25 and compare it to what you had for Q4, again, it looks quite similar. So you delivered an EBIT around -- excluding the asset sales gains of around $20 million. So annualizing that would make it $80 million for 2025. Obviously, you haven't fully covered your tanker position. So do you expect a deterioration of the product tanker coverage in assets and logistics. So the $20 million annualized to $80 million won't materialize? Or is the $80 million accurate?

It's a little bit hard to actually answer the question exactly because I don't really follow what it is that you're alluding to or that you're searching for. I think the biggest items that can make noise here will then be some of these financial gains. But I don't know exactly if that is what you are seeing.

It's just when I look the difference between your coverage rate and capacity rate and multiply that with the capacity you have for '25 and then divide it by 4 to get it per quarter and compare it to the similar capacity coverage table that you provided in connection with Q3, which for 2024, then -- I make the same calculation for Q4, when I do that kind of calculation, I get a very similar figure per quarter. So would it be fair to assume that per quarter in '25, other than logistics, should generate similar earnings as we see for Q4, excluding the asset sales gains, of course?

But are you talking about '25 outlook or '24 Q4?

Yes, the '25 outlook on the basis of the Q4 in Assets & Logistics. So is the Q4 for Assets & Logistics underlying earnings, is that a fair estimate for what you're going to deliver in '25, basically?

I'm not sure actually I can comment more on that because we haven't guided on a quarterly basis. I think what I can say instead is that I think the quarter profile for 2025 will be front-end loaded, so that the Q1 will be a relatively good quarter compared to the rest of the year. Some of this is sales gains, but some of this is also, of course, that the tanker market is still okay being in the strong season of the year. So that's what I can say about Q1, but not so much about, I think, the rest of the year.

Okay. Understood. And then final question on your Freight Services & Trading. It seems to have been recovering a bit in Q4 compared to earlier quarters. So when -- do you have a time line to when it will breakeven again?

Yes. So you have 2 key components in the FST business, and that is obviously the tanker operator and the dry operator part of that. The dry operator was the headache, you could say, in the first half of 2024. And here, we have actually seen performance turn around, and we have returned to profitability in that part of the business. But with a severe decline in the tanker market in the second half, we have seen much weaker tanker margins in FST. So we're not guiding specifically on FST other than the margins will be better. But whether there will be plus or minus breakeven, I think will be very much subject to actually the tanker market and how that market develops during the year. But at least we've had a good start on the dry cargo side.

[Operator Instructions] Ladies and gentlemen, this concludes our Q&A. I'll now hand back to Jan Rindbo, CEO, for any final remarks.

All right. Well, thank you for joining our call today. Thank you, and have a good day.

Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.