Odfjell SE (ODF) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the presentation of Odfjell's results for the first quarter of 2025. This presentation will follow a standard agenda. I will take you through the highlights and our CFO, Terje Iversen, will present the financials. And then I will conclude this presentation with an operational review and a market update and prospects going forward. So turning to the highlights. We continued our strong performance on safety with high operational efficiency and no significant incidents during the quarter. All our safety and operational KPIs were well within the requirements that we have defined. We delivered a resilient financial result in the first quarter in a market that is characterized by increased uncertainty due to the announced trade tariffs from the U.S.A. last year. The time charter earnings per day for the quarter was USD 29,556, and this is down 4% compared to the USD 30,744,00 that we delivered last quarter. Our EBIT was USD 54 million, and this compares to USD 68 million in the fourth quarter. Our quarterly net result was USD 34 million and adjusted for one-off items, we ended at USD 33 million, and this compares to USD 53 million in the fourth quarter of 2024. The net result contribution from Odfjell Terminals was $2.9 million, and this is slightly up from the fourth quarter. I'm also happy to say that once again, we reduced our carbon intensity, the so-called AER. And in the first quarter, we delivered 7.0, which is a further improvement from the previous quarter and a new record low for Odfjell. We are also proud that Bo Olympus in April completed the first near carbon-neutral transatlantic voyage, where we utilized suction sales and biofuel. I will come back to that when we go through the sustainability slide. We concluded 2 contracts for newbuildings to be delivered on long-term charter in 2027 and 2028. And this brings Odfjell's total order book to 20 vessels, of which 18 on long-term time charter and 2 vessels to be fully owned by Odfjell. And this concludes the walk-through of our quarterly highlights. And by that, I give the word to Terje Iversen.

Thank you, Harald. And I will, as usual, start with the income statement for this quarter. Starting with the time charter earnings. As Harald mentioned, we ended at USD 168 million, a decrease of USD 15 million compared to the fourth quarter. That is partly due to 2 reasons. One is that the time charter earnings per day is down 4% this quarter, which was then driven by reduced spot freight rates, while we saw the freight rates for lifting cool volumes were slightly up. The other half of the USD 50 million decline is due to fewer days -- commercial days in this quarter due to the sale of 2 vessels at the start of the quarter and also time charter vessel being off-hire throughout the quarter. Operating expenses ended slightly down -- slightly up $0.8 million compared to the fourth quarter, while we also saw the same increase in G&A, up USD 0.8 million compared to the fourth quarter '24. Main reason being that we had some costs related to the long-term incentive program and also due to higher fees this quarter and I would say, is normal level for the company. Terminals delivered $2.9 million, up from $2.2 million in the fourth quarter. Main reason being that we had some one-offs in the fourth quarter. So I would say it's quite stable results that continue to be delivered from the terminals. That leaves us an EBITDA of $93.1 million compared to $110.5 million in the fourth quarter. Depreciation, slightly down compared to the fourth quarter, where we booked the capital gain this quarter of USD 2.2 million related to the sale of both Clipper and Oceanic at the start of the quarter. That leaves us with an EBIT of $54.4 million compared to $68.1 million in the fourth quarter. Net finance ended at USD 19 million, up compared to the fourth quarter. Main reason being that we took an expense around USD 2.1 million, which was capitalized financing cost on 2 vessels that we refinanced this quarter. So we should not expect the same effect in the coming quarters. So after other financial items and taxes, we then delivered a net result of USD 34.4 million compared to $50.5 million in the fourth quarter. And as mentioned, we had a decline in revenue days around 269 days this quarter, and we also had more off-hire this quarter than we had in the previous quarter. Looking at time charter earnings per day, that declined slightly this quarter. We ended at $29,556, down from $30,744 in the previous quarter, where we saw the cash breakeven increased slightly to $23,996 compared to $23,386 in the fourth quarter, bringing the 12 months rolling average to $23,156. The reason for the increase was the same as for the decline in time charter. We saw fewer days commercial revenue days from our vessels due to the sale of these 2 vessels and 1 vessel being off-hire throughout the quarter. Going forward, we expect cash breakeven to decrease slightly in the coming quarters due to interest expenses being reduced as a consequence of repayment of our last outstanding bond, which we did at the beginning of first quarter. P&L breakeven ended at $23,553 compared to $22,368 in the previous quarter. Moving on to the balance sheet. It was a hectic quarter, so to say. We had a lot of activity on the financing side. And we also then sold 2 vessels, as mentioned, Bo Clipper for recycling and Bo Aceanic, reducing the book value of ships and newbuilding contracts to USD 1,225.6 million. We saw that cash declined ended at USD 86 million or if you include undrawn loan facilities, we have USD 145 million in available liquidity. The decline is, of course, related to the fact that we paid out a dividend in February of USD 62 million, and we also repaid the last outstanding bond, as mentioned, with around USD 100 million. Total equity decreased slightly with USD 23 million, which then, of course, also is impacted by the dividend that we paid out in February of USD 62 million. On the debt side, as I said, quite a busy quarter. In sum, we saw that noncurrent interest-bearing debt increased as we refinanced 2 vessels that previously was on financial lease. And we also drew bank debt for 1 vessel acquired for operational lease in December 2025, meaning that we took delivery in December, paid that with cash on the balance sheet, but now we have drawn a new on our loan facility to finance that on a long-term basis. All the 3 vessels were financed by the new USD 242 million bank debt facility that we established in the beginning of '25. Noncurrent right-of-use assets decreased as we prepaid the outstanding amount for our position, which we took formally ownership of in early April, while we financed then the vessel end of March. Current portion of interest-bearing debt reduced as we repaid the bond, as mentioned. And we also refinanced 2 vessels for financial lease to bank debt being then moved from current debt to noncurrent interest-bearing debt this quarter. Looking at the cash flow. Operating cash flow was USD 60.4 million this quarter, a decrease from $89.5 million in the fourth quarter, mainly due then to the lower time charter earnings this quarter. And also, we saw a negative development in working capital of $12.6 million, then decreasing then the total cash flow from operating activities from the previous quarter. On the investment side, we sold 2 vessels, as I mentioned, but also we refinanced Bo Explore and Bo Excellence from finance lease to bank debt, and we drew bank debt for Bow Aquarus. We also drew bank debt for Bo acquisition that formerly was then taken ownership of in April, and we also drew USD 20 million on existing revolver credit facility. On total, we then ended with net cash flow from financing activities, negative $128.9 million, meaning that we are continuing to reduce the debt on our balance sheet, even though we are quite active buying back ships that have been on operating lease. This is showing the free cash flow on a more long-term basis comparing each quarter back to first quarter '22. And as mentioned, we saw operating cash flow this quarter at USD 60 million, a decline of USD 29 million from the last quarter. But then we got a positive free cash flow from investment due to the sale of these 2 vessels of USD 70 million. So in total, we then had positive effect from the investment of USD 8 million, leading to a free cash flow of USD 69 million in the fourth quarter. If we look at the 12-month rolling free cash flow, we ended at USD 80 million, slightly down from the previous quarter. And if you adjust for debt repayments related to right-of-use assets, we reached USD 61 million in 12-month rolling free cash flow. As mentioned, quite active quarter with a new bank debt facility established and repayment of the bond, meaning that going forward, there would be less balloons, less loans maturing. End of first quarter, we have nominal interest-bearing debt amount to USD 738 million, and we expect a moderate increase during the course of the year due to delivery -- taking delivery of some operational vessels that we have exercised purchase options for. During this quarter, 4 vessels were refinanced under the new facility. And as mentioned, also one additional operating lease vessel will be purchased and included in this new facility. We also successfully repaid the last outstanding bond in January this month. Going forward, we expect USD 738 million increased to around $745 million at the end of 2025 and also slightly decreased in '26 and '27 based on what we expect going forward, the purchase options that we have exercised and the CapEx commitments we have today. Going into the details about the CapEx. As I said, at the start of first quarter, we had 4 declared purchase options for vessel on operational lease to us. We did payment for the first vessel, Bor Precision end of March, leaving us with 3 remaining vessels to be acquired at quarter end. The next vessel, Boerforma was acquired early April, and all the acquired vessels will be financed by this new debt facility. And also mentioned before, all the declared purchase options are well below the current market values, meaning that obtained financing will be around the full purchase amount for these vessels. All declared purchase options are included in the balance sheet per end of the quarter as the current debt right-of-use. In addition to the declared purchase options, we then have 2 newbuildings on order for our own account included in the figures at the top of this page. Looking at the newbuildings to be delivered on long-term time charters. As mentioned, we have exercised options or we have entered into 2 newbuilding this quarter, meaning that we have now 8 newbuildings on long-term time charters to be delivered from fourth quarter this year until 2025. In summary, we have USD 1.1 billion then in commitments if we include the OpEx element in these commitments, which will not be included in the balance sheet when we actually enter into these time charters when the ships are being delivered. These vessels, together with our newbuildings account for around 40% of the current order book in our core segments. Then I will leave over to you again, Harald.

Thank you very much, Terje. I will then continue with an operational review. We'll start with a look at the Odfix and Clarksons chemical tanker spot index. The OdficX saw a decline of 2.5% during the quarter, and that corresponds to a 3.2% decline in the chemical -- in Clarksons chemical tanker spot index. If we then look at the 3 major export regions, first, the U.S. exports. During the quarter, we saw a slight decline in the volumes being exported from the U.S. and this is in line with the broader market sentiment when it comes to U.S. exports. Middle East Gulf, here, we saw an increase in volumes during the quarter. This is mainly driven by increased nominations on our contracts. At the same time, the total market when it comes to Middle East exports saw a decline in volumes. Eastern Asia exports saw an increase in export volumes. And here, we had a slightly higher market share in our trades. And then what's on everybody's lists these days, the U.S. tariffs. On the left-hand side, you will see the proposed U.S. sweeping tariffs. Today, all the countries except China, are experiencing a 10% tariff. And in China, they have a tariff that is already imposed of slightly more than 100%. If we look at the total volumes going in and out of the U.S., we will see that the imports have had an increase of approximately 10% over the past 2 years, and the total import volumes are now around 24 million tonnes of liquid chemicals. Exports are more stable, slightly above 30 million tonnes. If we then look specifically at the trade between U.S. and China, in 2024, the U.S. exported approximately 1 million tonnes of chemicals and they imported 1.5 million tonnes. This implies that the trade between China and the U.S. when it comes to liquid chemicals is relatively modest and the imports are around 4% of the total volumes. Of course, we don't have any impact on those tariffs. So what we are doing now is that we are maintaining extremely close contact with our customers to try to understand how they perceive the markets and how they intend to distribute their production volumes going forward. And then to our contract renewal activity, we renewed 18% of our expected total contract volumes during the quarter. And despite the relatively soft spot markets, our contracts were on average renewed very close to rollover terms. We also secured 3 new contracts during the quarter. The total volumes increased slightly during the quarter to 3.2 million metric tons, and this was by far, due to increases in contract nominations under our contracts. Volumes carried by the pool vessels were stable around 100,000 tonnes. Sustainability, once again, we delivered a new record low when it comes to our carbon intensity, the so-called AER and the average for our own fleet during the first quarter was 7.0. This is a slight improvement compared to the previous quarter. At the beginning of the quarter, we installed section sales on -- sorry, at the end of the quarter, we installed section sales on board our super segregator the Bow Olympus. And in April, the vessel sail from Antwerp to Houston on a trial voyage where we are testing the sales. And I'm extremely proud that on the return voyage from Houston to Antwerp, we conducted a near carbon-neutral voyage with the combination of these sales and 100% biofuel. And by that, we have proved that it's possible to sail carbon neutral already today with the existing technology and the existing available fuels. And this is 25 years ahead of the IMO 2050 deadline. Then turning to terminals. All our terminals continued to perform well during the quarter. We had an average commercial occupancy rate of 95.8%, and this is 0.6% above the previous quarter. The EBITDA for the quarter was 8.4% million, which is in line with the previous quarter. Turning to the outlook. We are still below the peak levels that we saw in 2021 and 2022, but we have seen increases in the throughput on all of our terminals during the recent months. We are optimistic about the near and medium term, and we, at the same time, recognize that there is significant uncertainty regarding how trade flows will be impacted by the proposed tariffs in the U.S. We continue with expanding at our existing terminals. We have completed the construction of Tankpit R in Antwerp. That is adding 10 tanks and almost 30,000 cubic meter to the capacity in Antwerp. At the same time, the construction of the so-called Tank Pit 2 in Antwerp is continuing. We are building 2 stainless steel tanks. The total capacity is 12,000 cubic meter, and we expect to have those 2 tanks on stream during the second half of this year. We are also well underway with our expansion project in Korea, the E5 expansion project. This is progressing according to plan, and we expect groundbreaking in Korea later this month. It's also important to notice that all these expansion projects are financed locally in the local JVs. Then to a brief market update and prospects going forward. As mentioned several times during this presentation, we have seen a decline in the spot rates. Spot rates, West of Suez saw a modest decline with reductions between 1% and 9.6%. The biggest decline was for soybean oil exports out of Argentina, a trade where we have, I would say, very limited influence or presence in that trade. We saw bigger fluctuations East of Suez, where we had the biggest decrease on Middle East exports to Europe, where we saw an almost 20% reduction in rates, and also significant decreases from Southeast Asia to Europe, meaning that the volumes from Asia and the Middle East to Europe are in decline. Swing tonnage, we indicated in our fourth quarter presentation that we were expecting the swing tonnage to continue the reduced influx on the chemical trades, and that has proved to be right. The first quarter saw increases in CPP MR rates -- and the influx of MRs in the chemical trades is now down to 3%. Here, it is important to notice that many chemical tanker operators are permanently operating MRs in the chemical trades. Odfjell is a good example of that. We are operating 6 coated MRs in chemicals, and they have been permanently in chemicals since delivery. And that is also the case for many of our competitors. So, this means that we do not expect the influx of MRs to be any lower than what we see today. We are now at rock bottom, and we will expect this to continue going forward. Turning to the order book. I'll start on the right-hand side with the total order book, which now stands at 20% of the sailing fleet. There has not been announced any new orders despite the fact that we are now showing an increased order book. But what is the case is that we have received more information about existing orders and those existing orders have now been added to the total order book. Those orders that have been added are mainly by Chinese operators of chemical tankers. Odfjell has 14% of that order book. And if we then turn to the left-hand side and look at each segment of the core chemical tankers, we anticipate that we will see an increase in capacity of the medium stainless-steel vessels during the coming years. Medium stainless steels are typically 20,000 tonners and 25,000 tonnes. This is where we have the largest orders for chemical tankers. The large stainless-steel segment is a relatively old segment. And despite the order book, we will see a decline for those large chemical tankers. And those are large vessels with less sophistication and fewer tanks. And on the super segregators, we see a market which is more or less in balance, maybe with a short -- with a small surplus, but that surplus will barely be enough to cover the losses that we will see in the large segment. So all in all, we conclude that the order book is still at sustainable levels. And then to summarize this presentation, the geopolitical tension is still very high, and that was evidenced only a couple of days ago where we saw increased tension between India and Pakistan. The macroeconomic uncertainty has increased significantly due to the U.S. tariffs. It's putting a damper on the market segments. We see less trade activity, and we see more uncertainty among our customers. The maximum pressure policy by U.S. on Iranian exports in combination with the sanctions on Russia and in combination in -- with the proposed increased oil production by OPEC will likely increase the demand for compliant tankers, which again, will lead to less swing tankers operating in the chemical segments. We have seen downgrading of global GDP from -- with 0.8% to 2.8% for the world in total. And we also have seen a downgrading of GDP for the U.S. with 0.9% to 1.8%. But it's important to notice that we still see positive growth in all the regions where we are present. The global seaborne chemical trade is expected to increase with approximately 2% during 2025. And as mentioned, we expect the swing tonnage to remain low as the earnings are boosted by the effects that I already mentioned. So, to conclude this quarterly presentation, I'll give you the summary. We delivered a resilient financial result for the first quarter in a market which was very much characterized by increased uncertainty due to the proposed U.S. tariffs. Our time charter earnings declined in the first quarter with lower spot rates and fewer commercial revenue days. We saw a slight increase in volume, and those were for the most driven by our robust contract portfolio. And we also saw an active quarter when it comes to contract renewals, which we believe reflected the firm fundamentals in the markets where we are present. We saw on the terminal side, an increase in net result, and this is basically due to underlying performance and also partly due to some one-off effects that negatively affected the previous quarter. Market outlook, swing tonnage expected to remain low. And with all the uncertainty that are created by the proposed tariffs, we are preparing for multiple scenarios. We are in close dialogue with our customers. But with GDP forecasted to grow and limited -- a very limited number of vessels being delivered in 2025, we maintain a moderately positive outlook. So to summarize, we expect the second quarter financial results to be in line with or slightly better than the first quarter, but we are, of course, also closely monitoring the uncertain market situation that is present today. And before we turn to the Q&A session, please be reminded that on Monday, May 26, we will have our Annual Capital Markets Day at the Hotel Continental in Oslo from 10:00 to 1:00. For those of you who would like to attend this session, please send an e-mail to the address that is presented on the screen. So by that, we have concluded this presentation, and we are turning to the Q&A session.

Yes, we have received a few questions. Of the questions we have received, I think most are related to, call it, geopolitical matters, and you touched upon a few of these, Harald, but I will start just at the top here, and that's from [indiscernible]. A potential Red Sea reopening seems to be back on the table. What is your assessment on how a reopening would impact the chemical [indiscernible].

Yes. First, I've noticed that I think 2 days ago, President Trump announced that he had reached a cease fire with the Houthi. I think the first observation is that no one has confirmed that there is a cease fire in place. And I think we need more evidence before it's a relevant topic to send our vessels through the Red Sea. Having said that, it's positive that there are signals and signs that the Red Sea might reopen. And our estimates indicate that somewhere -- an opening of the Red Sea will add somewhere between 1% and 3% capacity to our fleet and our segments.

Yes. The next question is from -- we don't have the name, but it is on the COA renewals. As you mentioned, it was quite an active quarter also in Q1. And the question is on what was your COA renewal rate for the quarter?

The COA renewal rate for those 18% that were renewed were slightly more than -- a reduction of slightly more than 1%.

Okay. Then turning to our order book. And the question is if you can elaborate a bit on the 20 vessels that we currently have on order.

Yes. If you look at the Odfjell fleet, which today stands at, let's say, approximately 75 vessels. And if you anticipate that the normal lifetime for those 75 vessels is 25 years, that implies alone that just to maintain the current number of vessels, we will have to order in average 3 vessels per year to maintain the fleet. And then if we anticipate that the market will grow with, let's say, 2% to 3% over the coming years, then we will need to add at least 1 vessel to that order book, meaning that to maintain our present market position, we will need to add -- to order in average 4 vessels per year. If we still, on top of that, have some growth ambitions, then we will have to add more vessels to our order book. And today, we have an order book of 20 vessels. They will be delivered over 4 years, meaning that we have in average 5 vessels being delivered over the next 4 years. And that means that we are replacing the aging vessels. We are maintaining our present market position, and we are positioning ourselves for a slight growth of our market position. So I think that this order book makes a lot of sense for Odfjell.

Okay. One question for you, Terje, and I think you touched upon it. But on the CapEx commitment we have going forward, how much of that is funded today? And then could you say a little bit on that, call it, exposure?

We have, as I mentioned, 3 vessels that are currently on lease at end of first quarter that we are taking ownership of through the year, one in April and one in June. And next -- the third one is then in January next year. All of those have been funded with the loan facilities that we have in place. And also, as mentioned, due to the very favourable purchase option prices that we are having on these vessels, we will -- we expect to finance 100% of the acquisition price for these vessels. Then we have the newbuildings on order, 2 new buildings on order in addition. Those are not financed today. There are still a few years until delivery. And based on the balance sheet and based on the funding capacity we have on the balance sheet, I think we will obtain the needed financing well ahead of delivery of those vessels. But today, we don't have any rush to go out and secure financing based on the very solid balance sheet we have.

Excellent. Then we have one question here. And that's back to you, Harald. Will Odfjell be exposed to the proposed U.S. port fees?

We did quite significant work preparing for the proposed port fees. There were in total, I think, somewhere between 10 and 20 different proposals. Some of them would hit us quite hard and some of them were aimed directly at Chinese operators and would not hit us at all. So we were going through all those proposals. We were in very close dialogue with our customers to explain to them what the consequences of these tariffs -- of these port fees might be. We were in dialogue with international organizations such as INTERTONKO, ICS and EXA. So we were trying to share information about the consequences in as many ways as we could. The conclusion is on the table today and chemical tankers have been exempted from the port fees. So at this point, U.S. port fees are not an issue for chemical tankers, and we cross fingers that, that will continue.

Indeed. Then there is just a question received here from Alexander. And that's back to you, Terje. Will the newbuilds that are on time charter in be booked on the balance sheet as financial lease or are they operational?

They are operational lease. We have purchase options for some of those, but there is an 8-year tenor for these vessels. And we can decide on whether we want to use that option when we are approaching 8 year or maybe after 5 or 6 years. But whether we will exercise those options, that is -- that remains to be seen will depend on the market and other alternatives we have for our fleet. So there will be operational lease on our balance sheet, and that will be then included as right-to-us assets. And that will, as I said, we have USD 1.1 billion in total time charter commitments for vessels not delivered yet, but around 2/3 of that will be capitalized on the balance sheet when we are entering into these time charter agreements.

Okay. And then I think there was one final question from Sam, and I will read it out, but I also suggest that you send me an e-mail, Sam, on the address that is on the final slide of the presentation on the capital markets slide, but it's a bit more, I guess, technical on our data sources. But the question is CKB fleet, which is our source for the supply slide, suggests that Odfjell has more than 20 ships on order. Can you please comment if that is accurate or not? And I guess we can comment that, that is accurate.

That is 100% accurate. Today, we have exactly 20 vessels on order.

Yes. So again, Sam, please send me an e-mail if there's something that you want to discuss further. Yes. And I think that was the final question in the Q&A session here, so...

Yes. Then I thank all of you for attending this presentation, and I sincerely hope to see as many as possible of you at our Capital Markets Day on May 26. Thank you very much for your attention.