Western Bulk Chartering AS (WEST) Earnings Call Transcript & Summary

Hey, welcome, everybody, to Western Bulk's second half and full year investor presentation. Starting with our disclaimer. As most of you will know, our business model as an asset-light operator is to match vessels and cargoes in the markets. We add value to the clients by providing an optimized transportation service. And we also offload or provide a service of offloading risk for our clients in the freight market and offer them future fixed freight rates. Today, yes, the summary of 2024, second half. Our net TC improved in the markets which had a low volatility and also a market that was moving against seasonality. We spent the year of -- lowered our G&A by 15% to $22 million. And we also had negative impacts by one-off by $4.2 million, which we will come back to later. $22 million -- no, $28 million in free cash, no outstanding debt and USD 35 million in financing, well booked. So although the market has been improving fast, we do have a muted market view for the first half of this year. And that's based on fundamentals, high order book in both Panamax and Supramax/Ultramax markets. And also we see the demand side being relatively weak. You had last year, you had Panama Canal that was disrupting the market significantly. And you also have China which was front-loading commodities for the first half of the year. You don't have them now. So people, culture, data, these are the key priorities that we're working on in Western Bulk at the moment to become the best. And let me go through these one by one a bit more details. So in Western Bulk, people are definitely the most important factor deciding if we are losing or making money. And we have lost too many talented people over the years. So we are taking steps to improve our retention rate, looking to attract the best people and to get the most out of the people that we do have. Also, we have a good foundation for our cooperative culture in Western Bulk. The teams are pulling in the same direction. This is sometimes difficult in trading companies, but we have a good culture where people are pulling in the same direction and putting the company first. However, we have identified that if we're going to be the best, which is our vision, we also are -- we need to enhance our performance culture. This is also something we are going to focus on over the next months and in detail. Also, when it comes to using data in chartering decision-making, it's an extremely important focus for us. It's very important that it doesn't become like a management phrase, but that actually everybody in the company is open for it and is willing to kind of to have a dialogue, close dialogue between the chartering team, the tech team, research team, the analysts, we all need to work on this together. And I believe that my background from chartering can be really helpful in achieving this goal. The potential here is huge. You could see in a lot of companies that you have a chartering team that doesn't trust the data, it might be for a good reason. You might have some -- quite a few hurdles to go through. But I'm sure we can become one of the companies that actually leverage data to make better decisions and thereby making more money. Paying dividends, it's all kind of one of the huge potential things we are seeing to work on here now. And then, I'll leave it to Kenneth to go through the numbers.

Yes, results. We focus on our adjusted results with a full year net TC of $28.6 million and earning after tax of $2.6 million adjusted results then excluding extraordinary costs of $1.1 million related to the redundancies and $4.2 million related to provision for future loss on contracts. The net TC of $28.6 million includes a gain of $4.6 million from the sale of Western Oslo in Q3, as also reported earlier. I think for the second half has had a rather good spot trading, in particular, taking into account the low market volatility, which Torbjoern will refer to. He'll also refer to the fact that we positioned vessels into the Atlantic for seasonal push, which did not materialize, and that's also what's influencing when you look at the second half figures. Although a significant improvement from last year, it's not necessarily something that we are satisfied with the results. G&A of $25.5 million when excluding the $1.1 million in redundancy costs. That's also excluding bonuses, then it's down by $0.4 million from last year, excluding bonus. And we are very confident that we will manage below $22 million from 2025 when excluding bonuses. Yes. And one-offs, I commented already extraordinary costs for redundancy $1.1 million and then the contract value is $4.2 million, where $1.4 million is related to the physical contracts and $2.8 million related to FFAs, how it's measured at the 31st of December. Looking at our balance sheet, we have $28 million free cash, no outstanding interest-bearing debt and $35 million in available financing, that leaves an available liquidity of $63 million, which we're confident with. Working capital requirements at about $15 million to $20 million. As you see, accounts receivable and bunker stocks is what fluctuates and we have a decrease of about $4.5 million in working capital requirements since last year due to a bit lower volume at the year-end and book equity of $50 million. And just briefly also on the purchase options. We sold the Western Oslo for -- with a profit of $4.6 million in Q3. We have 2 other similar options, not expecting to make necessarily the same amount on those, but likely to be sold in the market against the margin as we do have a view of a declining S&P market. And I'll leave it to Torbjoern.

Yes. This chart is just showing the lower market volatility and where we are on the curve when it comes to that second half of '24. I think low volatility and counter-seasonality, it's been a challenging environment for operators to navigate, but we see more volatility coming into the first half of 2025. Lots of geopolitical uncertainties and factors for -- that can play a role. So by the end of Q3, our Atlantic position was standing at 20, 25 vessels. We have positioned them in with relatively small investments from the East, backhaul voyages primarily with steels. So again, the market did not move as we anticipated. The grain season out of the Atlantic was slower than we expected. So when we saw that the season did not come, we took the ships off the table and reduced the risk going into the rest of Q4. But it's important for us to mention that this is part of our strategy. We have a business model where the core business, the basic business of serving our customers in the spot market is going to be slight profitable or cover the cost of the company and plus the margin. But in order for us in this competitive operator world to make the big money and the big returns, we will also need to do positioning. If you go 10 years back in operating, there was probably less transparency and there was probably potential to sit and only trade on low-risk mixed pricing. But going forward in this market, the companies that want to be the most successful will also need to take some moves. Those moves and Western Bulk will be done only a few times during the year when we see that the risk-reward is heavily in our favor, and we will allocate the risk and investment thereafter. So this is what happened in Q4. And by doing this strategy, we will hit it right more often than we will hit it wrong. So over time, it will be profitable. So going back to the Q4 backhaul front in play, we saw back then that basically 8 out of 8 years from 2016 to 2023, the second half in the Atlantic was stronger than in the Pacific. And in 6 out of the 8 years, the increase is more than $5,000 a day with an average price of $7,500. So just to show the kind of downside, the risk-reward upside -- downside versus the upside here. So if the Atlantic market had risen by $5,000 a day during August and September, the net strategy from this play alone would have been $15 million to $20 million. So that's just worth keeping in mind when to have some numbers behind it when I say that the risk reward was like it was. Okay. So Supramax index, first quarter, obviously, started with a big decline in the rates, nothing unusual and also bounce back towards Chinese New Year, also very, very usual seasonality in dry bulk. So we have spent this quarter on getting rid of expensive tonnage that we have left on the books and also renewing the good performing vessels at lower levels. So it's a good job by our fleet performance team that has worked in close cooperation with our chartering team in selecting which vessels to continue and which ones to discontinue. So we hope this will lay a good foundation for the rest of the year, and we remain positive for 2025 to be a profitable year for Western Bulk. I think that's about it to say about that slide, yes. Yes. So market view. There has been a rebound in the spot levels, as I just said, especially in the Pacific. The Atlantic has also seen an increase, but much less. Fundamentally, it's quite tight with tonnage in the Pacific at the moment, whilst in Atlantic, there is ample supply. We also have seen that an increase in spot levels has regained some optimism in FFAs, so has been pushing Q2 up. But we expect this to be overpriced too. So again, we are not too optimistic for the first half of 2025 for the reasons that I explained earlier in the presentation. That will mean we will not go overboard stacking up with tonnage at -- after the push has come, and rather be happy with what we already secured earlier in the quarter and build the cargo book from here for the next few months. So in general, something that is more and more in our mind in Western Bulk and I'm sure for many others, and most others in our industry as well is that we are cautious about trading too much on historicals and really have to stay on top line, stay on the ball when it comes to all the geopolitical uncertainty and tensions, what that has to say for how we can position ourselves for that. Yes, the highlights. Improved trading performance from 2023. We are building the company by improving it step by step, working closely with the chartering team, with the operations team, with the other teams and a net TC of USD 28.6 million adjusted in a year like -- a challenging operating year like 2024. It's at least not too bad, and we feel that's a good foundation to build from going into 2025 and improve further with the lower cost base now below $22 million. The good thing also, strong cash position, $28 million in free cash we are ready to capitalize on any opportunities that might come in the market, nothing restricting us on the trading at all, open for business. If there's -- we see a potential for partnerships, mergers, joint ventures, acquisitions. I mean we are really exploring the whole plate, and we feel we are on the offensive. There is a lot of good things happening in Western Bulk, and we're focusing on the people we have to get the most out of those people working here and also the culture in the company to further build that one, get that winning culture that we want to have, and we believe it will take us to the top and improvement initiatives that I mentioned as well. So -- and once again, muted market view for the first half of 2025, but optimistic further out on the curve and in general, for the results of the year as a whole. So yes, I think we can open up for questions. Then I say thank you to everybody for joining, and I wish you a good week ahead.

Thank you.