Stolt-Nielsen Limited (SNI) Earnings Call Transcript & Summary

[Audio Gap] looking more closely at Tangara trends. TCE for the quarter was $23,372 per operating day. This was down 11% on last year, but still comfortably above the 2018 to '22 average of $19,825 per day and broadly in line with a time year average of $23,303. During the quarter, we saw a reversal of the downward TCE trend we have been seeing for the last few quarters. You saw an increase every month in the second quarter with May TCE climbing above $24,500 per day. The chart to the left reflects just how sharp the move has been since March. The Deeps Chemical Index is up around 80% since the conflict in the Middle East began driving volatility in freight markets. The effect comes both ways. Some outs are seeing upward pressure on rates and ton mile demand and others downward pressure. And we are watching this closely as it evolves. In the market moving this crackly, what matters most is not scale, but adaptability. We are staying close to our customers, reading the ecosystem and reacting fast. Again, the diversification point is worth repeating. This is where our model delivers. We are more than a chemical tanker business. We are the world's largest chemicals logistics company. Stolthaven Terminals had an excellent quarter, achieving steady performance across the financial KPIs and delivering our record quarterly operating profit. I'd like to thank Guy and his team for these exceptional results. Revenue was EUR 82 million, up 3% year-over-year driven by improved utilization as well as storage rate escalation on existing contracts, new business and a favorable foreign exchange effect. We are delighted that our strategy on improving utilization is bring fruits as utilization reached 93.4%, up from 92.1% a year ago. Operating profit of EUR 29 million was the highest quarterly performance on record, marginally up year-on-year. The revenue improvement and a slight decline in operating expenses more than offset a lower contribution from joint ventures, mainly due to weaker performance at Andro and start-up costs at our new terminal in Taiwan. Looking forward, we expect the storage market to continue to remain stable utilization to continue to gradually improve through the year and costs to remain well controlled. U.S. capacity additions in Newson New Orleans remain on track. These are a good example of the discipline, selective investment approach we apply across the group, and this expansion should support earnings growth from Q4 on. STC results were impacted by the tough market conditions. Revenue was up significantly 23% year-over-year. This was driven by the acquisition of the Suttons business, which pushed total shipments up 2% to just over 48,000 shipments in the quarter. Underlying volume, excluding suddens, were broadly flat. Adjusting for the $4 million of sites integration costs incurred in the quarter, STC's underlying profit was EUR 3.7 million, reflecting tighter transportation margins and lower demurrage and ancillary revenue. including certain results, STC overall had an operating loss of EUR 0.3 million. Of course, we are disappointed with this performance, and Erste team is already implementing performance improvement measures to counter this trend. The sudden integration is going on as planned, with the bulk of the cost now recognized. In addition, we are seeing an improved margin trend during the quarter. Gross profit per shipment was up versus the first quarter, and we have seen month-on-month operational improvements building out through the quarter. I want to thank Hans and his team for the at response in turning the business around with visible improvement back to a profit towards quarter end. We continue to take a prudent view in the short term and manage the business tightly as visibility in this market is limited and margins remain constrained. Let me pass you to Alex now to cover the market backdrop before I close with some final remarks, and then we move to questions. Thank you, I'll start with the chemical and feedstock market backdrop since the closure of the Street. Overall, chemical supply chains proved more resilient than expected as countries and producers adjusted utilization maintenance schedules and sourcing strategies. The Holmes closure has been a significant supply chain shock, given its position as a key source of chemical and chemical feedstocks. We saw an 18% reduction in tanker transits in the region a 15% drop in global chemical trade volumes versus prewar levels. That volatility and the resulting regional imbalances pushed chemical spot freight rates up by 20% to 30%. And -- 2 export regions helped fill part of that gap. In the U.S., producers benefited from a feedstock advantage with continued crude and ethane availability, supporting a 40% increase in exports to Europe, Latin America and Asia Pacific. Asia Pacific also proved more resilient. -- chemical production in the region largely continued albeit at low utilization levels as China used its strategic chemical and feedstock reserves to increase exports by 20% and support regional supply. We're seeing early signs of activity returning, but uncertainty remains elevated and conditions change daily. The Seafire framework announced last month was a positive development for global energy trade flows. -- but it remains an evolving situation and the outlook for a full resumption of safe and reliable transit through the strat remains uncertain. We expect gradual normalization to play out in 3 phases. First, transit assumption following a safe and orderly reopening before the closure around 130 vessels move through the straight each day. At the low point, that fell to around 10 to 15 vessels. Whilst we have seen recent positive development to around 40 ships per day, we still sit well below pre-conflict levels. Given events in the last couple of days, we have seen something of a slowdown in activity. But it's too soon to tell whether this is short-lived or not. The second phase is vessel repositioning. Inbound traffic should build as ships reenter the region to support cargo flows. Such a development will require greater clarity on security, insurance and operating additions through the Street. The third phase is a durable cargo recovery and the restoration of energy flows. -- assuming a safe reopening of the streets. Current estimates suggest crude and energy flows could take up to 4 months to recover the 80% of prewar levels. Chemical export normalization may lag crude and CBB given the upstream feedstock constraints built up during the closure. Beyond the media recovery, -- we expect inventory restocking across crude, product and chemical feedstocks to continue through 2027. That should support activity across shipping, terminals and logistics. Whilst the path to normalization is unclear, the broader macroeconomic environment could also impact demand for chemicals. As such, we remain cautious overall until we see a sustained normal operation through the straight. Turning now to store tanker supply and demand fundamentals. On the demand side, Seaborne trade volumes reflect the impact of the homes closure with volumes expected to decline in 2026. The scale of that decline will depend on the timing of normalization. A recovery of the normalization a recovery of similar magnitude is also expected in 2027 as trade normalizes and inventory restocking takes hold. That should support our demand outlook into next year, subject to a full resumption of activity in the street which is difficult to predict. VM market is also an important yes. Let's take a look. Can you hear me?

Hello. Okay. Can you hear me now? [Audio Gap]

[Audio Gap] in this range for Q3. And then for Q4, it just unfortunately becomes too far overall and that is related to the situation in the Middle East and the unfortunately, unclarity around is the ceasefire really holding up because that, of course, can have significant impact on demand. So I think we have a good performance right now. We expect that to continue strong into Q3, but we have no visibility how Q4 will fall out.

Thanks, Pete. [Operator Instructions] The next question is in relation to Avani. And a question, if we can give an update as to when the Avenir transaction will close, maybe I can cover that. So we announced that we'd signed an agreement to sell 50% of Avenir to NYK and former joint venture in March and that the timing of that completion was subject to relevant closings, including competition and other factors. If those are still underway, we expect, as we already guided that the completion should happen within the middle part of the year. So we will make an announcement once that has been concluded and that is the last question that we have in the Q&A today. So I thank you. We're close to a recording of the call on our website tomorrow. Back to you.

Thank you so much for joining us today and wish you all a great rest of your day.