Odfjell SE (ODF) Earnings Call Transcript & Summary

Good morning to all of you, and welcome to Odfjell's presentation of our second quarter results. We will follow an agenda, which should be well known to all of you. I will take you through the highlights, and then my colleague, Terje Iversen, will present our financial performance. And finally, I will conclude this presentation with an operational review, market update and the prospects going forward. So if we then turn to the highlights, we start with safety. We have seen a very volatile environment this quarter, but I'm still very satisfied to report that our strong safety performance continued throughout the quarter. I'm equally happy to say that our 4 Odfjell vessels that were trapped inside the Middle East Gulf have all safely left the region. And this is due to a fantastic cooperation between the people on board our ships and also onshore on different locations. We are presently not considering to send vessels through the Strait of Hormuz. If we then turn to our financial performance, we delivered time charter earnings of USD 195 million. This is up from USD 167 million in the previous quarter. Our average time charter earnings per day was USD 29,486. This is also up from USD 27,232 in the first quarter. And this reflects the stronger spot market that we have observed during the quarter. Our EBIT was USD 69 million. This compares to USD 46 million. The net result contribution from Odfjell Terminals was USD 1.8 million, which compares to USD 2.3 million in the previous quarter. And summarized, this concludes a net result of USD 54 million in the second quarter compared to USD 32 million in the previous quarter. If we adjust for one-off items, the net result was USD 56 million compared to USD 26 million in the first quarter. Other important items, our carbon intensity, the so-called AER was 6.9 in the second quarter, and this is down from 7.0 in the previous quarter. We delivered this result despite the obvious inefficiencies that we observed in the Middle East region. We also took delivery of 2 newbuildings on long-term charter during the quarter. And at the same time, we sold 1 vessel for sustainable recycling. On top of that, we signed an agreement to purchase 4 super-segregators to be constructed at the Kitanihon shipyard in Japan. And finally, yesterday, the Board approved a dividend of USD 0.52 per share based on our adjusted first half results. And by that, I give the word to Terje Iversen, who will take you through our financial performance. Thank you.

Thank you, Harald, and good morning to all of you. I will, as usual, start with the income statement for this quarter. As mentioned from Harald, the time charter earnings this quarter ended at USD 195 million, a significant increase from the first quarter with USD 167 million. Looking behind the figures, of course, we were helped by higher spot rates, especially in the start of the quarter, which contributed to higher time charter earnings per day. We also had an increase in commercial revenue days with 6,409 days, an increase of 295 days, primarily due to delivery of 2 new vessels this quarter and also 3 vessels that were delivered through the first quarter. We also had a slight decline in off-hire days, also then increasing available days this quarter. Included in the net time charter earnings, we have also included USD 5.3 million, which is a customer settlement following a favorable outcome of a recent arbitration that, of course, have helped the total time charter earnings this quarter. Time charter expenses ended at USD 14.4 million compared to USD 15.2 million in the first quarter. Operating expenses, we saw a slight increase to USD 54.6 million, mainly due to new vessels joining the fleet this quarter. While we saw the G&A reduce this quarter from USD 20.3 million to USD 18.2 million, mainly due to seasonal effects in the second quarter. After operating income -- other operating income not shown at this table at USD 1.4 million, we delivered an EBITDA of USD 111.3 million compared to USD 81 million in the first quarter. That also includes net results from our joint ventures with USD 2.2 million compared to USD 2.8 million. Included in that figure is net result from our terminals with USD 1.8 million compared to USD 2.3 million in the first quarter. Decline is related to a smaller impairment being done at one of the terminals in this quarter. Depreciation and amortization increased somewhat to USD 41.7 million, mostly related to more vessels on our balance sheet. And after a small capital loss this quarter related to a resale of contract -- newbuilding contracts for vessels being built in China of USD 0.9 million, we delivered EBIT of USD 69 million compared to USD 46 million in the first quarter. Net interest expenses declined somewhat to USD 13.8 million compared to USD 14.3 million in the first quarter, also helped by net interest income this quarter related to the customer settlement that I mentioned in the time charter earnings with USD 1.4 million (sic) [ USD 1.6 million ] then contributing to net interest expenses going down this quarter. After other financial items and taxes, we then delivered a net result of USD 53.5 million compared to USD 32.1 million in the first quarter, leading to earnings per share of USD 0.68 compared to USD 0.41 in the first quarter. If you adjust for nonrecurring items, we delivered a result of USD 56 million. That is then related to the impairment I mentioned and also the capital loss and other finance, improving the results of USD 56 million compared to adjusted result of USD 26 million in the first quarter. Time charter earnings per day strengthened this quarter. At the same time, we saw a lower cash breakeven. Our time charter earnings per day ended at USD 29,486 compared to USD 27,232 in the previous quarter. Main driver, of course, the stronger spot markets, especially as we saw in the start of the quarter. And this is also worth mentioning that this time charter earnings per day excludes the customer settlement that I mentioned on the previous slide. Cash breakeven declined to USD 21,804 compared to USD 22,984 in the first quarter, bringing the 12 months rolling average to USD 22,165. Decrease was driven by added revenue days from the 5 newbuildings that were delivered during the first half and also less off-hire days in the second quarter. Going forward, we expect the average cash breakeven for this year to be around USD 22,000 (sic) [ USD 22,200 ] per day. And also worth mentioning our P&L breakeven was around USD 22,281 compared to very much the same figure in the previous quarter. Looking at the balance sheet, we saw some changes on the ships and newbuilding contracts. As mentioned, we sold 1 newbuilding under construction. We also sold 1 vessel for recycling. On the other hand, we also paid predelivery installments for the 4 newbuildings for the 40,000 deadweight tonnage vessels being built of USD 35 million in April. And we also took delivery of the 2 vessels on long-term time charters, then increasing the total value of ships and newbuilding contracts this quarter. Right-of-use assets then also increased from USD 285.7 million to USD 321 million this quarter. While we saw investments in associated joint ventures declined somewhat from USD 182.8 million to USD 180.9 million this quarter, main effect was related to that we took out dividend from the terminals of USD 3 million this quarter. Cash and cash equivalents ended at USD 165 million, while including available drawing facilities, we had USD 385 million in available liquidity end of second quarter. Also worth mentioning that we paid the newbuilding Bow Pluto that we took delivery of in July with cash and that will later be included in an existing loan facility. On the equity, we saw that equity increased by USD 46 million, in line with the comprehensive income we booked this quarter, leading to equity percentage end of second quarter of 46%, very much in line with previous quarter. On the debt side, we saw that other current assets increased, and that was primarily due to the fact that we have more expensive bunker on our vessels and also increase in other inventories during this quarter being also impacted by new vessels being added to our fleet. Cash flow this quarter, we ended with a very strong operating cash flow of USD 81 million, an increase of USD 30.9 million compared to first quarter. And of course, that is mainly related to higher earnings this quarter. On the investment side, we sold the newbuilding under construction in China, and we also sold 1 vessel for recycling. In total, that gave us cash of USD 23.2 million. On the other hand, we invested in the 4 newbuilding vessels with USD 35 million and also had some expenses to dry docking and other projects. So in total, we are then left with net cash flow from investing activities of USD 19.5 million this quarter compared to USD 21.7 million in the first quarter. Not much going on, on the debt side when it comes to refinancing our new facilities, only ordinary repayments, leading to net cash flow from financing activities of negative USD 27.2 million. And in total, we then saw an increase in net cash and cash equivalents this quarter of USD 33.9 million. Looking at the last 10, 11 quarters, we see that we are delivering a quite strong quarter with USD 80.6 million in operating cash flow, up from USD 49.7 million in the previous quarter relates to higher time charter earnings, as mentioned. Net cash flow from investments was negative USD 20 million (sic) [ USD 19.5 million ] due to the installments on the newbuildings primarily. And on the other hand, we also had the proceeds from the sale of ships during this quarter. And net cash flow -- free cash flow then ended at USD 80 million minus USD 20 million, USD 61 million this quarter up -- from USD 28 million in the previous quarter. Looking at the 12 months rolling free cash flow, we are at USD 49.7 million. And if we adjust that for repayments related to right-of-use assets, we reached USD 37 million compared to USD 35 million in the previous quarter. On the debt side, not that much going on when it comes to maturing facilities in the next quarters, not before in the fourth quarter of '27. Looking at the total debt end of second quarter, we have around USD 738 million in interest-bearing debt. We expect a slight increase year-end due to the delivery of Bow Pluto that will be financed by the new tranche that will be drawn upon in these days. And then we expect a small decline going forward based on existing profiles and a maturing loan going forward. Not included in this slide is the financing of the 4 newbuildings, the 40,000 deadweight tonnage vessels being delivered from first quarter '27 until second quarter 2029. So that will increase these estimated numbers. On the projected debt right-of-use assets, that is USD 321 million end of second quarter. That will increase end of this year around USD 400 million, mainly due to delivery of 3 -- 4 newbuildings that we deliver on time charter through the second half. And then we also will see an increase in right-of-use asset debt in '27 and '28 due to the newbuildings being delivered on long time charters to Odfjell. When it comes to the newbuildings, the 4 newbuildings, we are in process, and we are evaluating alternative stage days, and we expect the financing to be finalized within end of this year. CapEx and time charter commitments. In total, we have time charter CapEx commitments at USD 289 million end of -- for the total -- for the 4 newbuildings and including Bow Pluto, which then was paid in July with USD 35.4 million. So then we are left with the 40,000 newbuildings being scheduled to be delivered from first quarter '27 to second quarter '29. On long-term time charters, we are signaling that we are having a lot of commitments when it comes to newbuildings being delivered from second half '26 until 2029. Here to summarize the total time charter hire for all these vessels, we are close to USD 970 million on our balance sheet, that means that we will add around USD 500 million in new assets from second half '26 to end of 2029. [ Harald ] will come further into that, but these vessels that we have on time charter that are going to be built and our own newbuildings accounts for around 30% of the current order book in our core segment. Then I will leave the word to you again, Harald.

Thank you very much, Terje. And by that, I will continue with an operational review. We start with the volumes. And as you can see on the left-hand side of this slide, we have relatively stable volumes quarter-on-quarter. We lifted 3.2 million tonnes of cargo during the second quarter, which is the same as we did in the first quarter. However, if you look at the quarters reported in 2025, you see that the volumes are down from previous levels. And that is, of course, the effect of the Middle East Gulf situation. The split between spot and contract volumes were relatively stable also during this quarter, and we are reporting a contract coverage of 46%, which is up 1% compared to last quarter. If we then turn to the markets in general, the Clarksons Chemical Tanker Spot Index reported an increase of 24% during the quarter, while the ODFIX Index is up 9.8%. It's important once again to notice here that Clarksons is reporting the difference between rates at the end of the first quarter and compare these with the rates at the end of the second quarter. The ODFIX Index is reporting average earnings during the quarter. So those 2 graphs are not entirely comparable. If we look at the volumes, we see that there is a slight decrease on specialty and commodity chemicals, but this is, to a large extent, outweighed by an increase on vegoils and biofuels. During the second quarter, 19% of the volumes that we lifted were vegoils and biofuels. In the first quarter, this figure was 12%, and this compares to an average of 8% in 2025. So we clearly see that there has been a bigger influx of vegoils and biofuels during the first half. And I must say I'm satisfied by my organization's ability to change operation modus in line with changing market conditions. CPP was stable at approximately 4% of our total volumes. Then to sustainability. We reported an AER of 6.9, which is down from 7.0 in the previous quarter. And it's important to notice that we delivered those strong figures despite the fact that we see significant inefficiencies in and around the Middle East Gulf. Going forward, we will add more and more super eco vessels, and that will have a positive impact on our AER performance in the future. And finally, we are watching carefully the buildup of the El Nino in the Pacific Ocean. We do believe that this will have an impact on transits through the Panama Canal. It will likely have an impact on energy prices from November onwards. And we are also curious about the effects that it will have on the crop yields and by that production of vegoils and biofuels. Turning to our terminals. The headline here is stable performance despite significant volatility in the global markets. Our average commercial occupancy rate increased to 96%, that's up from 94% in the previous quarter. Throughput was up 6% and the number of handlings was relatively stable. Our consolidated EBITDA for the terminals was USD 10.7 million, and this compares to USD 10.6 million for the previous quarter. We have previously disclosed a shareholder dispute at our terminals in the U.S. and this dispute was referred to the court, and we are satisfied to see that the judge ruled in favor of Odfjell on all the counts handled in the court. Going to the market situation. The storage demand in the U.S. is relatively soft. This is due to the world geopolitical situation. And we see the same tendency in Asia, where there are direct and indirect headwinds due to the shortfall or disappearance of Middle East volumes. We expect this situation to continue as long as the situation is as it is in the Middle East. We have previously reported 2 important expansion projects, one in -- at our terminal in Antwerp, where we are building 18 duplex stainless steel tanks with a total capacity of 36,000 cubic meters. This project is on schedule, it's on budget, and we expect the tanks to be on stream by the first quarter of next year. We are also building out in -- at our terminal in Ulsan. Here, we are building 88,000 cubic meters of carbon steel tanks. This project is on time and below budget, and we expect the tanks to be on stream towards the end of this year. Then to the market update and prospects going forward. We see that there are being reported strong earnings from the other tanker segments, both for VLCC and for the [indiscernible] earnings. And this situation has obviously an effect on chemical tanker freight rates. So we did see a sharp increase in rates at the start of the quarter, particularly West of Suez, but also East of Suez. West of Suez, this increase has been tailing off towards the end of the quarter, but the rates are still at very robust levels. We also saw some trailing off of rates East of Suez towards the end of the quarter. And of course, this area was characterized by surplus of tonnage due to the disappearance of the 2 Middle East trades. And naturally, rates have not been reported for those 2 trades since the outbreak of the war in the region. And then to the volumes and swing tonnage situation. I think the most interesting takeaway from this graph is the shortfall of volumes during the past 3 months, where we see that volumes are lower than what we have seen in the previous months and quarters and the shortfall is approximately 6% of the total volumes. We're also satisfied to see that swing tonnage is being maintained at very low levels. And then to the order book. The order book today stands at 20% of the sailing fleet. Odfjell has 13% of that order book. And that is -- at the end of the second quarter, we had 20 vessels on order. Since then, 1 vessel has been delivered, meaning that today, we have 19 vessels on order, of which 17 are being built in Japan. The biggest fleet increase will be seen in the medium stainless steel segment, where we see more modest increases in the super-segregator segment, which is Odfjell's core segment. Going forward, we expect -- we have seen the total volumes decline during the second quarter. And we've also seen that there has been an increase in volumes out of the U.S. and Asia, but these increases have not been enough to totally compensate for the lost Middle East volumes. The uncertainties in these figures relates to what is related to production increases and what is related to drawing on feedstock inventories. So that is one uncertainty when it comes to the chemical tanker markets going forward. The economic growth figures are relatively stable, but there are signs of increased inflation, which again can have an impact on interest rates. And finally, we clearly see that the inefficiencies in the Middle East have a significant impact on the ton-mile production, which is the main reason why we have seen freight rate increases, both East and West of Suez. On the supply side, we do see that there will be vessels delivered over the rest of this year and also next year. And that will, of course, have an impact on the freight rates. At the same time, we see that we are building up a rather significant book of recycling candidates, which will provide a buffer for the vessel deliveries in the coming years. When it comes to swing tonnage, we expect that the other tanker segments will continue to maintain the present rate levels, and that will prevent the influx of swing tonnage into the chemical tanker business. So going forward, we expect the volumes to be more or less in line with what we've seen in the second quarter. We don't observe any important changes in the world GDP growth. We expect the geopolitical situation to continue throughout the third quarter. And here, I would like to add that the situation that we are facing today with unrest in the Middle East, we have seen increased unrest in the Black Sea. We've seen increased volatility in the Red Sea. We've seen attack in the Eastern part of the Mediterranean. And finally, we've also seen increased activity on the Coast of Somalia. And I think this is the first time that we see increased volatility in all these areas at the same time. On the supply side, I've mentioned the increase in the total sailing fleet, and I've also touched upon the modest influx of swing tonnage. So to summarize this short presentation, Odfjell reported a net result of USD 54 million. This compares to USD 32 million in the previous quarter. For Odfjell Tankers, we saw an increase in average time charter earnings per day, and we also saw an increase in total time charter earnings during the quarter. We reported an increase in commercial days, and we also had a relatively low activity on the dry-docking side. For Odfjell Terminals, stability is the key word. EBITDA and net result was very stable quarter-on-quarter, but the volatile geopolitical situation has an impact on storage markets both directly and indirectly, and we expect this to continue throughout the third quarter. Going forward, we have seen that the spot markets have softened, but the rates are still at very attractive levels. Chemical tanker fleet will continue to grow and the swing tank tonnage will remain low. So all in all, we do believe that this will continue to support the present rates, but there might be a potential downside with respect to vessel deliveries and the potential uncertainties related to diminishing inventories around the world. So for the next quarter, we expect the underlying net result to be lower and closer to the levels reported in the first quarter. And by that, we have concluded our presentation, and we are now open to answer any questions that you might have.

We have received quite a few questions during the presentation. So I will, as per usual, read them chronologically. And I think some are of the same topic. So maybe we will try to bundle a little bit together here. Starting with the first one here. This goes to you, Harald. If Asia and the U.S. were unable to compensate for lost Middle East Gulf volumes, why did freight rates spike? And why are they still elevated? Do you expect rates to soften for the remainder of 2026?

Yes. If we start with the volumes, I said that the total volumes transported by chemical tankers was down approximately 6%. At the same time, we do know that the Middle East is delivering some 15% to 20% of the total production of the world. And that means that when those 15% to 20% disappear from the market, but the total decrease is only 6%, that means that volumes are increasing in other regions of the world. So we have seen, first and foremost, an increase in compensation for the volumes that have been -- that have disappeared. And those -- that compensation is now being transported over much longer distances, meaning that the total ton-mile production during this quarter has been higher than what we have seen in the previous quarter. And that again explains why the freight rates are going up. So this is, to a very large extent, ton-mile driven.

Next one is to you, Terje. It's quite a specific question, but -- and I think you touched upon it during your presentation, but just for any confusion, I think this is relevant. In your tankers report, you show an EBITDA of USD 116.8 million. But after adding elements, this is, in fact, USD 115.5 million. What is the difference?

As I mentioned during the presentation is that we had other operating income of USD 1.4 million this quarter, which is included in the EBITDA, but not specifically shown in the P&L that we showed on the screen. If you look into the detailed P&L and also the notes, you will find further details related to that.

I think there are a few questions here, and this I think goes back to you, Harald. It's relating to the current market and our outlook and also the fact that we are taking delivery of vessels for the second half of 2026 and of course, for the coming years. So maybe if you could just elaborate a little bit on our -- how we see sort of taking new vessels into a potentially somewhat softer market and a little bit around that development.

Yes. I can do that. We have been taking vessels into our fleet for more than a year already. All those vessels have been planned into our schedule. They go immediately into production, and they are making money from day 1. So I'm not for a second concerned about the vessels that will come into our fleet in the coming quarters. And yes, we have a plan for every one of them. And secondly, we also have some buffer with existing vessels that are either due for recycling or where the time charter agreement is expiring. So we have plenty of opportunities to balance our fleet. But I think the main message is that for more than a year, we've been taking those vessels into our fleet. We have been making money on them, and we will continue to do so also for those 19 vessels that are due to enter our fleet.

Next question is a bit specific on products here. And if I may, I believe I have some of the figures that he's asking for here. So -- but the question is, I read that sulfuric acid volumes are declining due to export bans. I assume that refers to China. Given our large stainless steel fleet, would that have a big impact on us? It is correct that asset volumes out of China have declined. At the same time, we see that our total asset volumes, first off, we have a diversified mix of products that we carry. So we will never see that one particular product will impact us in a significant way. But I believe our volume of assets was around 8% to 10% before the crisis, and this has actually been quite stable for us even after the export ban from China. So yes. The next question is to you, Terje, again, and it's -- you touched upon it in your presentation, but the question is, if you could elaborate a little bit more on the planned timing of when you will secure financing for the own newbuildings on order?

Sure. I must say that we started to look into alternatives right after we placed the newbuilding orders a couple of months back. We have been working on alternatives. And I would say we are quite advanced in our discussions with alternative structures. And I must say that we are very happy to see large interest out there to finance us and offer us competitive financing. So I'm quite optimistic that we are during this fall going to conclude financing at least for a couple of these vessels, and we may wait a bit because some of these vessels are delivered in '28 and '29. And to avoid paying commitment fees and being stuck with that for a couple of years, we may conclude only a couple of those before end of year and wait with the 2 last ones. But that is -- remains to be seen. But as I said, we are seeing great interest, and we expect to land a very good competitive financing for these vessels.