Q4 2019 Earnings Call
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Hello and welcome to the Q4 2019 earnings conference call. All participants will be in listen-only mode. Should you need assistance. Please send you a conference specialist, press star key followed by zero after today's presentation. There will be an opportunity to ask questions to ask a question. You may press * then 1 on your touchtone phone to try your question, please press down are than to please note this event is being recorded. All right. Now, let's turn the conference over to head of investor relations Brian Gallagher, please go ahead.
Thank you. Good morning and afternoon to everyone and thanks for joining your and ask you for your 2019 earnings call before I start. I would like to say a few words in motion discussed on this call is based on information as of today Thursday the 30th of January 2020 and may contain forward-looking statements that involve risks and uncertainties forward-looking statements reflect correct views with respect to future events and financial performance and may include statements concerning plans objective goals strategies future events performance underlying assumptions and other statements which are not statements of historical facts all forward-looking statements attributable to the company or to the persons acting on its behalf are expressly qualified in their entirety by reference to the risks and uncertainties and other facts just discussed in the company's filings with the SEC which are available free of charge on SEC website at www.sec.gov and on their own company's website at ww.w.
You would have to come.
Did not Place undue Reliance on forward-looking statements each forward-looking statement speaks only as of the date of the particular statement and the company undertakes. No obligation to publicly owned update or revise any forward-looking statements actual results, May differ materially from these forward-looking statements. Please take a moment to read our Safe Harbor statement on page two of the slide presentation.
With that. Oh, no, you go to start with the agenda slide on slide three you go over to you. Thank you very much Brian . I'm very pleased to introduce our new home to leave a logger with with us for the first time on this call and I'm equally pleased with Rustin Edwards with us who is our head of fuel procurement. I will I will run through the Q4 highlights for passing on to leave who will provide a financial review of the income statement and balance sheet. We will then together look at the current themes in the tanker market and take your questions at the end of our remarks.
Let's turn to slide 4 to 4. So the strong.
Markets, we've been expecting through most of 2019. The underlying fundamentals have been the key driver behind the remarkable rate increase as we saw in Q4 the demand coming from the fineries was strong as they returned from a prolonged period of Maintenance and preparation for IMO 20/20 during the quarter demand growth running at an annualized rate was down more than one and half million barrels per day, of course a number of exceptional factors drove the stock market to very high risk during October , but on average the rates for both vehicles off season 2 is Max where the highest seen forequarter seems 2008.
This elevated rate environment has continued into twenty-twenty which is yet another sign that the fundamentals of our markets have improved as normally rates often over the cross holiday.
On another note. We are pleased to confirm that you're now will adopt a new Belgian corporate code in 2020 allowing us to pay dividends on a quarterly basis. This will permit us to better align the cash flows from our business with our shoulders.
in addition
Today we announce our proposal to pay $0.29 dividend per share covering the second half of 2019. This will bring the total dividend for the year at $0.35 per share of this is indeed 80% of our net income after adjusting for capital gains. In addition. In addition to dividends. In fact urine have brought back to your coolant or $13,000 worth of shares. So in fact just for the year 2019. We are returning to our shoulders $105 or almost 50 Cent per share wage.
The good news is that the first quarter of 2020 so far is even stronger than Q4 2019. We have booked around sixty percent of the quarter at close to $9,000 per day for vlcc and $57,000 per day for serious Max.
Recently raised have softened still a decent levels around $45,000 per day for vlccs. The sentiment has shifted for the moment much because of the old brake of a respiratory virus the coronavirus in China. The full macroeconomic impact is still being assessed at the moment with that. I will pass on to leave Ur who will run through Thursday financials.
Thank you.
Google I'm very excited to join your own <expletive> and I look forward to meeting most of the people present in the call in the near future. Let us have a look at the p&l the operational life or business is clearly illustrates in slide fights. You don't have booked a spectacular profit in Q4 amounting to $160 compared to a break even result. In fact last year with a similar cost base moreover. A capital gain was realized on the sale and his back of three of our older vlccs just before year-end month. We sold those ships at twenty-three million dollars above their book values in accordance with IFRS 16 a capital gain of nine point three million dollars will be booked long as it represents the portion related to the rights retained and the underlying assets by the buyer at the end of the lease. The remainder of the twenty-three million dollars will be wage.
recognized over the leasing.
Do you balance sheet remains a strong and robust as shown inside leverage on Mark the book values remains in the mid 40% which leaves a lot of flexibility over cash position at the rent was $297, which is slightly more than prior years and it was augmented that year-end. Thanks to the sale and lease-back. Your own us has no outstanding topics when it comes to new buildings whilst in 2020. We will take sixty ships through their regular survey in drydock choice of those ships will require installations of ballast water treatment system. I will not pass back to resting to run through current issues starting with the fuel spreads post office.
Good afternoon, the development of the fuel Market's leading into an after the I am or Twenty twenty transition have been remarkable high sulfur fuel oil is looking to follow the predictions of most analysts in November as high school for Thursday, instead of dropping collapsing flow minus $30 per barrel and the high sulfur fuel Market structure moved to a $45 permit ton contango for calendar 2025 a little fuel conversely increase in value on a wholesale basis, especially a shipping companies began the work to supply ships with compliant fuel in late November December , however, painted a much different picture than what people are expecting and that picture continues to develop today. You have to let chart shows that nearly December high school for fuel convince to Rally with a prompt month crack moving from a minus $30 per barrel to a month $17 per barrel of a high from last week the market structure flipped contained to the back rotation and remains in that quotation. The upper-right charge shows that very low sulfur fuel predictably started the rally in town.
December spike in early, January
For scrambled to get compliant fuel bunker supplied to their ships and it has started to reach a market equilibrium as in the initial Panic by and has waned and now very low sulfur fuel supply and demand not studied out why such an emerging story The Refinery sector is very efficient setting up and executing the transition into IMO twenty-twenty you find us we're able to find alternative routes plates that your magic is the high school computer or a yields as an example the US Gold Coast refining system retooled in Q3 to bring in high sulfur fuel overfull destruction increasing code for utilization and moving out light seat Croods process Indian refining sector also played a part as well ramping up the refining a price of fuel oil into disorders. So in the end the Russian refunding system, which was long, I sold the fuel found a home.
For the fuel that they produce and had that has been shipping large Parcels into the Gulf Coast and the Middle East refiners long you'll have also a taker in the Indian refiners for the residual wage not going to be consumed by the Scruff. It invests has very low sulfur fuel has been multiplied.
The most Market regions resulting in a steady supply of complying fuel although with a variety of specifications depending on the blind.
Price-wise the spread between in high school for fuel and very low sulfur fuel has been volatile as can be seen in the chart on the lower left. It had a spike in the end of December and in the beginning of January up to $320 Feet Under Pub, and it's now coming off as the stronger-than-expected high school for fuel oil Market has the move the spread into an average of $225 a ton of the prompts. The calendar 2020 spread is now at $195 per month and the count twenty one is marked around $145. The forward Market is showing a continued squeezing of the high sulfur fuel vs. Little fuel spread is higher demand for high sulfur fuel oil is substituting the correct very low sulfur fuel demand and as can be seen in the bottom right chart from a price perspective urine has been insulated from these Market moves from the stocks that we have on the Oceana which are purchased at $47 over in early 2019. Some of the predicted quality issues from the transition had materialized in the very low sulfur fuel oil Market. There has been quality issues as blenders were more focusing on meeting. Yep.
For specification rather than the holistic fuel oil Quality Asphalt in Fallout seems the majority of issues. But also some performance specifications are becoming problematic blenders having mixing large amounts of dispatch was into the beer and let's hope fuel oil which results in a very low viscosity fuel oil which can be used for a short duration. But for most ships require special handling it being used at load over a long Voyage. This is prom plants to start enforcing a minimum viscosity requirement for the merchantability of very low sulfur fuel oil traded in the market on close window process in Houston Rotterdam Singapore here and have again has been protected from them. We have our own quality in hand that we have tested and we even had like negligible impact for operations. We continue being able to have our best form their Charters to our customers safely and efficiently as we always have
Thank you Rusty for that still run through and through the fuel spread issues. And you're in a positioning within it. This is Brian Gallagher head of investor relations at year and half and now like to move on to slide 8 in the preparation back.
On our website and then the press release today.
We have highlighted that you're in office today given an update on the webinar from September . So investors can assess how our Outlook has progressed and how it compares to what we said once it's in the face last year.
One feature we did highlight as a potential driver was that development of China looking to produce compliant low sulfur fuel early this month China announced it was taking away jobs and duties on the domestic production of low-sulfur fuel oil. We believe this is a very important development over the next twelve months around 1 million barrels per day production month. Hope this new life. You'll come into play this output is important, but it's also important to stress that it will not be available on the world's markets to buy but only available to Chinese shippers month. However, this potentially increase in compliance fuel availability of material and something be highlighted five months ago.
This is also given more detailed on slide eight.
Moving on to slide 9 in the large tanker shipping vessel Market supplies everything and is a key variable to focus upon 3020 will again see sustained levels of Destruction, which we highlight in this slide.
42
You could delivery during this year, which is a headwind. But if the I a demand broadcast is correct for 1.2 million barrels per day. We estimate this will require 36 bills. He sees itself may need this increased demand.
The old bat uranium vessels I am a related storage long-term storage the cost and he's leaving the fleet for retrofits will serve basis takeout around about a hundred and twenty these over the course of twenty twenty as you see on slide 9.
In addition twenty-eight-year-old CiCi's will reach their twentieth anniversary during this year and we require special survey, which the only one have to make significant potential Capital Investments wage with a limited addressable Market. It's very encouraging that three such bills disease have already this calendar year gone to the scrapyard despite base of high Freight rates.
I just like shows over 70 vessels in all including this 28 will be aged over 20 years during 2020.
that is more than
current order book of $60 bills disease according to classes
Finally, there's a lot of speculation regarding the 26th, which have been out of action since October . We would like to make two points here. These ships are all Anchored In the far East and it will take time for them to return to the cable feet fleets Algonquin sanctions are lifted. So this will not be an instant return.
That can be it's highly likely there are term will coincide with phase. One of the China trade deal announced recently. Meaning that some of these vessels will be absorbed into this trailer court.
No, moving on to slide chat 10:00 and the sheer liquidity and a big change for your end of June to 4th 2019 on slide ten. We focus on share liquidity, which is something investors off of correctly focused upon for a long period of time. You would have his know the most liquid share in the large tank of space with around about fifty million dollars worth of value traded each day on average in our Chef you today.
This is across two exchanges with the market cap over two billion dollars and training and quality meeting many of our investor thresholds. This will allow investors to participate in what you're in and we'll be home early eating of a sustained type tanker cycle.
With those remarks, how may help us back to our TVs again? If you go to sleep for an executive summary you go over to you.
Thank you Brian . We have known slide 11 during that maintains a very constructive stance on the tanker cycle for the next year's to come with all of our traffic lights showing green or green Amberg as I mentioned twenty twentieth start strongly. And once we we can continue to expect volatility in Freight rates throughout the. We believe that race will be strong on averages wage. Well markets will however and as always be influenced by external geopolitical and macroeconomic factors which are hard to predict but we believe that the fundamental pillars present to them should enable the industry to cope with those with much more flexibility than what we have had in the last decade. The order book for large tankers is a 25 year loan that still ordering remains limited and the age profile of the world Fleet is very constructive.
in addition the reason
In phase one of the us-china trade agreement should support our markets as an important feature of the deal itself is about export of energy into China.
With that I conclude our prepared remarks and I passed back to the operator. Thank you.
Yes, thank you. We will now begin the question-and-answer session to ask a question. You may press the star then one on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys to try your question, please press star than to put yourself to one question and one follow-up. If you have further questions, you may re-enter the question Queue at this time wage voluntarily to assemble the roster.
And the first question comes from Randy Givens with Jeffrey.
Howdy gentleman, how you doing? Great. And yeah congrats on the new role, you know, the last CFO left you with a pretty low bar. I'm sure you'll do better than him. So just getting you guys thank you awesome so much better than the previous year for I can tell you that for sure for sure. All right. So quick question, the ls fo that you bought forward. You know, how much of an impact has that kind of pre-purchased fuel had on your time Charter equivalent in the fourth quarter and especially in the first quarter to date month and then what's the plan kind of going forward with that lsfo that you still have? Is it solely going to be used on your own at vessels or you going to kind of take advantage of the high prices and sell it to third parties now dead?
Well Randy, that's it. That's a very good question, but it's a
To be the questions early the first bar which is impossible to answer and the reason why it's impossible to answer is because as I mean in the presentation, you've heard resting there's been quite a lot of activity in the price of SFO in the price of HSE for and obviously these are the two products that we can bear with us because when we purchase, um, this edited full, you know, sort of a early and middle of last year. It was out of prizes. It seemed at that time very attractive and which seems has been even more attractive but in order to quantify exactly the advantage you you would need to look at the market almost on a daily basis and you are not fixing ship Samsung TVs so you can only compare to averages and as I said the average so far is probably too early to tell because we have started the The Quad
on the relatively High spreads and the spread was
Need of a relatively high energy for Price or you know, the price of which we have acquired or lsfo. We have repeatedly, uh said on many occasions that was for $48. So at times during the corner so far so during the month of January , um, it was uh, 250 up to $150 lower than the piece that we have seen But then Mom has bought that material at that Peak, you know, that's that's the limit the question and the same goes if you want to compare us to uh, the guys equipped with a scrubber why it depends welcome aboard their own few and I would price is it was at that time. So I think we will have to wait until the end of the quarter to see the real difference. Then we have with our page as you know, or Ps have mixed feed speak with service, please without Scruples and I think at that time we'll be able to circuit our Advanced. It was so much on average for the quarter compared to dead.
uh announced cover sheets and uh or these
Vintage because shoot for sure. There will be a some disadvantage in pricing would be so much and then we'll be able to see going forward whether the strategy continues to make sense if we need to buy more because there is continuously Arbitrage in the market depending on where you buy the NSF or or whether we need to look more seriously Life Strategies, which will set for a long time. Now that we continue to assess the benefits of and we will decide when we see some sort of stability in the market to answer the second part of your question very quickly. Yes, that field is only for us. Sorry guys. We very selfish.
Noted. All right, and then I guess just following up on kind of the the new dividend policy. Obviously the 80% of net income going forward. How do I purchase is kind of factor into that like you mentioned you purchased a bunch in 2019 share prices obviously pulled back here in the last month. So How Do U do share repurchases in accordance with the 80% dividend policy?
Yeah, so two things to to mention there. Thank you for asking. The question that gives us the opportunity to clarify 80% is the total return to shoulders and we consider our share repurchase as part of a return to shoulder. So you have seen that in to 9 in the in 2019. We far exceeded or policy because we are returning 80% of our uh, I you know, and in addition we have done Thirty Million worth of a share repurchase. It doesn't mean that we will always do that. We have indicated a Target and the targets, you know, the word Target was precisely chosen because that's what we are aiming at but obviously if we can do more we will do more I think that's um, the big change in 20 is the fact that we can destroy evidence, uh on a quarter-by-quarter basis, uh, which quite frankly is an advantage for the investors because dead
As opposed to what we've done.
The path we're looking one quarter of the time in the past. We are more looking at the year. And so the the some of the prophets were compensated in some of the losses going forward. That's not be the key as you look at the quarter. You distribute your target of 80% for that quarter. You distribute it. Any the next quarter you do a loss. Then you only have to fix dividends. Uh, but you don't get back home when we did the street. So I think that's that's a significant Advantage, uh in a volatile market and it gets our results closer to the to the shoulders. Um, then of course is on share repurchases. I think the philosophy of this company has always been the same which is we don't rush to buy back or Affairs. So if there is ugh weakness in a surprise, I think if we want to see a little bit where it's a temporary weakness or whether it's more permanent and if it's more permanent than than obviously we're thinking very seriously dead.
We can.
Back of that at the moment. Uh, the the week. This is the share price is pretty recent. We were actually quite a bit but uh the share price performance in the latter part of last year and certainly the first ten days two weeks in January where we finally getting share prices with uh above r n e v which is always our objective. So we're disappointed about what's going on at the moment. But we also understand that there are exceptional so you can see consensus around here and that's true for every month or so before deploying some cattle and share repurchase. I think that we see we need to see how long and how deep it will go because if you buy today it maybe tomorrow it would be weaker or maybe tomorrow. It's going to be stronger. But if it's stronger tomorrow, then it was just a temporary weakness if it's deeper tomorrow, then you better wait before deploying your capital.
That makes sense.
Thanks for the great color and congrats again on the the Stellar quarter.
Thank you so much. Thank you. And the next question comes from Michael Webber with whatever research advisory.
Good morning, guys. How are you?
Hey, Mike.
One of the the touch base first on the impact of of initial versus subsequent loadings different Blended fuels a little bit early to see them in fact yet, but I'm just curious, you know, we're hearing some Rumblings, you know that it's causing an issue and and and it's going to be a bit unpredictable but I'm curious as you look at 2 and maybe Q3 long. Do you think those issues could create a a measurable impact in terms of available tonnage then? How do you think the the sector ends up responding to that?
I think it's a bit early to to tell I mean, it's it's true that what we are seeing the material that we have seeing in the market is a mix of straight friends that have been accumulated over the same idea that was certainly the case for us. But as you know, there were a number of ships out there with elastic material waiting to to be consumed up after the deadline of 31st December . I think it's going forward you will continue to see a number of number of refineries producing straight friends of LSS for that shouldn't be a problem. Then you're going to have probably more material hitting the market wage that all the result of the blend and indeed or experience in the past has showed us that uh, you need to be extremely prudent with those lands if the if the seller offers you want to get as close as possible to the people or mixing it. Basically we're blending what is the center has demonstrate to you that this product has been Landing in very similar way that in the past. It has been off.
The market it with no issue.
Then then you can be confident that the chances are that there will be no issue. But I agree with you that you too and Country may see a little bit more untested material and we can only advise people starting with ourselves to be proved and what they buy obviously everything that we have on the Oceania has been thoroughly tested we have we've made many times we get to go for at least you want you to and probably leave it more than that any questions that you want to handle this thing will just on the quality issues that month or existing in the market today. I mean, there are a lot of issues around stability that have popped up. It's been reported in a lot of the different industry Publications as well as from the different testing Society such as a BTS and Lloyds. Um, and that seems to be the predominant of the big of the biggest problems are seeing where people are just blending for a soul for an uplifting for Quality. Hopefully as time goes on Thursday.
You know people will get better at what they're doing and the stability issues should go away. But as cost is always a big drivers the blenders p&l maybe not.
okay now that that's
Awful, I appreciate that just not an easy question to tackle. This is a follow-up, you know, if you go just with with respect to the the fuel hedge, you know, what we're looking at right now in terms of problems a bit of an exogenous demand shock in terms of coronavirus kind of layered on the Chinese New Year. Is there a scenario where we see food prices collapsed the point where you would consider re-upping that fuel hedge and extending for how realistic do you think that is?
I mean, you know us I think we can we can call ourselves very opportunity. We have a team that's fully dedicated to shoot at the moment and resting me the heading the team that we are in the market not only in front of the screen, but also talking to people's time as I mentioned earlier on the first question. We see quite a lover of Arbitrage from time to time served. The markets are behaving very differently between Safari Singapore and and the Atlantic specifically interrupted them. So yes, yes, why not home. Um, I think that we might do it, uh in in a slightly different way because the first time uh, when we did last year our objective was to fill up the ship down here. It's going to be more opportunistic around, you know, one talk about the time and and and and make sure that's when we buy that car go we are as close as possible of consuming that cargo so dead.
Are not taking uh, you know, sort of time risk that are unnecessary.
Right, it would be fair to assume. You need to be near your
Original cost basis. It's a question. That wasn't really pertinent in you know earlier in January . Just giving the the severe discount we've seen since it's going to come back on the radar. We always still very far from home for a that we are for and don't forget that the full Freight we reported is including a a lot of extra cost to deliver the material to set up. I mean to clean it the ship in order to make sure it wasn't contaminated. So the real cost of of the fuel itself is probably lower than that. We are very far from hitting those territories for sure. But rest assured. I mean we are being at the fair enough great. Thanks the time guys. Appreciate it.
Thank you. Thank you and the next question comes from John Chappelle with evercore.
Hi guys, this is Shaun Morgan. I'm for John today. So we know it's obviously pretty early and and difficult to gauge the impact of coronavirus. But as part of TI your May operator, do you think there's any impact on your business so far and have you seen any impact on chartering or any disruptions to the port in terms of loading or unloading?
The short answer is is is no but why don't I take this opportunity a little bit to share your view on on the coronavirus. I mean, first of all, it's bad news. I also pretend that it's anything else and bad news and it's especially a disaster for those who are affected. So let's think about them for a minute. The impact is definitely in certain income in the short-term. It's negative. It's certainly not positive but that's in the short-term and in the long-term, I guess that everybody is convinced that it will be contain a certain extent you want those measures to be as strong as possible so that the virus is contained as quickly as possible and uh, I mean Believers it may take time may take a little bit of time but it will be contained. The third point is very important to mention that urine at business model is to be able to weather all storms because we know off
There is always something that can affect us or that can affect our markets. There is completely unpredictable.
I think that's the the model has demonstrated. This is strength in the past and will continue in the future. So that's probably the the only assessment of we can do at the moment but there's always um, you know, the sort of a long-term positive sides to it. First of all, if you think about what happened in Georgia, so this initial days of the year, it was a pretty big heat up on the values of vessels. I mean dmcc is it be exchanged at a hundred seven million bucks and you compare that to a ninety million that you can get at the shipyard 14 months down the road. That's $40,000 per day of profit.
$40,000 per day above your Opex to $70,000 BCE that you need to print on average for fourteen months to justify that price. I think those prices are probably we're probably exacerbated by the excitement around the race, but quite frankly, we don't believe that they were justifiable. The second potential positive news is that as Brian said there are Twenty Eight ships turning twenty years twenty years old in 2028. I think that we're making the decision to recycle them a little bit easier if the market goes through, uh more difficult times for a few months.
because at least
Demonstrate that the market is still volatile and if you want to invest a lot of money to pass that survey you better make sure that you're going to have a return for your buck.
Two weeks ago or even last week there was a couple of reports pretending that 46 Costco ships were going to return to the market where I first off 26, that's the only number of ships that have been idle, uh, believe me with the various. They are unlikely to come back very soon.
The next one is the next phone is probably that if we look at other terrible viruses that are spread out in the past, but we know for sure is that once it's contained and things go back to normal. They don't go back to normal. There is a huge stimulus, uh usually made by China but also by other economies to try to cash back a little bit what has been lost during the period and so if you if you predict that it may take a few weeks or a few months what you have today is a fantastic q1. I mean no matter what the rest of the quarter will be. It will be a great q1.
then you will have the
Summer which is never the. For for which we we count to make the year and then chances are we back the winter with a super strong market so off depending on how things turned out it should be a great here. And as far as capital markets are concerned with this is the purpose of the of the call off. This is a fantastic entry point in tanker shipping companies and with urine out, of course, you have a guaranteed to be paid because we just an hour we're going to be a dividend Thursday. We have announced that will be quarterly dividend. So you're going to be paid for 19. You're going to be paid for twenty. So you're going to be paid for to wait until the the upside and if they're upside is off quickly coming as I just Express, uh, you are uh in a company with a super strong balance sheet that can weather any sold, so
Yes, it is a terrible news. Yes. It is completely unexpected but quite frankly.
Investor and I was attracted by the sector.
I know where I would put my money.
Okay, great. So sounds like pretty comprehensive answer but no disruption so far. So I guess we'll continue to monitor that you did mention in in your response the Costco ship. So I guess that kind of is a good lead into my second question, you know supplies obviously important driver the cycle of those 120 vessels from slide nine or page nine page that are out of trading. What's the base case return number you guys are thinking in terms of those hundred twenty vessels. That would return sometime this year. Like, what's your base case?
Assuming it's a Brian Gallagher here. And I think what we want to try and get across with the other side here is to say that this disruption is as it says on the on the side going to be constrained and probably sustain the 26th ships is Hugo said in his remarks as well. We would expect to see some flow back of those potentially will also be some flow back from ships which have been driven by and motivated by I am motivated storage but apart from that it's very difficult to see the other categories of those Ships coming back the vlcc retrofitters an annualized number based on consensus figures of like Ninety Six TVs to go off would be retrofitted over this year. So I think the only real element we would see of that 120 of those Cosco ships. And of course that is wound up with the US China face off on the fact that they are positioned in the far east as you go said as well several times and it's called already. We don't expect those ships to return back to the market very quickly as and when they are given permission to do so dead.
So that would be the only real moving part. We would see out of the 120. Okay, great. So about 75% of those will remain out for the year. All right. Thanks. That's that's all I have. Thank you, ma'am. Thank you. And the next question comes with Chris rather be with the city. Hi guys James on for Chris wanted to touch on.
This is Grover installations in your walk. I think you called at sixteen. Let me get a sense of when those 16 vessels might be returning to the market and if there might be another wave of birth installations on the back of that as well.
Well, that's a very similar question to the one we we just answered. But so the 16 is a annualized number. So in fact, it's close to a hundred ships that have an order of screws and that needs to be asked of a fitted so they they will go in the yard and we'll return from the yard after the retrofit which on average we understand is Thursday 5 to 40 days, uh that that's the figure that we got from the market obviously not from our own experience. And then who knows I mean, it depends where the spread is going. I mean there's there's I suppose a lot of people like us who are waiting to see where the spreads stabilize in order to take the decisions, but we are not as busy then then they were last year. So things should should get better and better and then the the total number of retrofit will depend on uh, where the spreads time does.
Got it then.
Dry docking I think he called out 16 vessels that will be dry dock in 2020 of off her should we expect for that? And then what would that be relative to what you experienced 2019?
Between idea was a very light here. We only had one and wealth and almost two drivers. I mean one was over the year-end so long to compare one year with the other in 20 2016 ships, uh on average this the vlccs. It's 21 days. She was like a little bit quicker 18/9 days, but six of those sixteen ships will require a ballast water treatment system to be installed. Uh, and so we are likely to take 45 additional days compared to a normal driver to do that.
Got it. Thank you.
Thank you. And the next question comes from Brendan. Dolan was staple. Hey, good morning afternoon guys. So I first of all just sort of given the Outlook that that Brian laid out with the green lights and Amber and so forth. I'm curious how you think about asset values here wage, usually optimistic with respect to you know, the current market and not looking everything else. Do you feel that appropriately reflected in asset values or or would you potentially be buyers of assets in this market?
Well, we we bought the answer the question earlier with the when I mentioned that 107 when you compare that to a a brand new pack sheet that you can order in foreign shipyards at a million. It's very difficult to justify. That's a little bit the nature of the market at the moment.
If you look at the TCM, if you look at the Historical asset value performance versus the spot Market there we should probably be a little bit earlier than what we are today, but that's not really how it's going to play out this time because the odds are I would say pretty empty but the order book is pretty low. As you know, as long as we mentioned in the in the presentation, uh, which means that we are unlikely to see any inflation in the prices of new buildings. So that will probably anchor down potential, uh increase in values of the second-hand college. So it all you always have a premium to pay when the market is good because while the assets is dead water and ready to earn immediately, uh, but nevertheless is going to be trapped by the fact that the first birth available for new buildings are, you know, fourteen or fifteen months down the road?
So you just made the calculation that I just did for you.
Other than that, I think we have already seen a pretty nice uptick compared to the the bottom of the market. So we don't expect to see a page and quite frankly for the the problem super modern the sort of resale new deliveries. Uh, it's likely to go down we buyers I think that we are both students and so it depends and
some of those teams are are called ships for shares. And so it depends where your share price is trading and we obviously will not happy at all with our share price at the moment. But if we could create a TV or above n e v would be exchanged it for a ship at any of you why not or purpose is to consolidate when it comes to uh cash payment off then we need to be more conservative than the than the numbers we've seen so far this year.
Okay, that's very thorough. I appreciate that you go and and then just as my follow-up in the past particularly in the Sous Max's you guys have taken time charge of coverage Market's pretty good. How long have you been at all active in that or or any thoughts on potentially doing so
The volume of of times are contracts that are available in Market very thin so you don't have so many opportunities. And in fact, you probably have like opportunities in the last three months or four months simply because the market has been extremely volatile extremely volatile, uh, on the way up. Uh, I was you know, quick quick going to to uh to the $100,000 a day ugh, very little distraction over the Christmas holiday and then suddenly a massive drop. So I think it everybody is looking at each other in the eyes and and and thinking uh on one side. This is divided on the other side. This is too low and that's what we call the bit off of spread and we need to see a little bit more stability and I know I'm asking a lot for or markets because most of the time we don't see it but with the lease on visibility and I think it's some of the events affecting the market at the moment. We spoke a lot about the virus, uh is Jeff.
predictable, uh
So careful to start uh signing of the contract. Okay, I appreciate it. Thank you.
Welcome. Thank you. And the next question customer Greg Lewis of btig.
Hi, Greg.
It's 11:00 to lose your lines are open.
Okay. Well moving on the next question comes from a meeting with Deutsche Bank.
Thanks operator. How you go? So I guess they were there were some trade reports 10 days ago or so that your nav was carrying out inquiries would scrubber suppliers home. I just wanted to know if you can you know expand on that either confirm or deny that and then you know, I understand the spread has come in. I think that's obviously clear but but maybe one of the the the issues can be because the you know, the the price of crude oil is down over 15% since January . So I want to understand your thinking around scrubbers. You kind of alluded to it a little bit earlier, but I would like you to expand on it because the premium that's currently being achieved there is a sizable premium on at least on a basis for scrubber fitted vessels and the fact of the matter is the spread could just be reflection of some Trattoria reduction in input costs. It can kind of white in that back out. So it'd be great to just get your perspective on that. Yeah. No, absolutely. So the the first part of the question is whether or not we got install scrubbers wage.
uh, and and and
The answer is the same as we have mentioned since September last year. We're not against her will not Prosper over but we certainly against a speculative investment because we're speculative enough in our in our traditional business. I would say so we are looking at the market we look at the price of each. Is it for Thursday at the forward curve of ASF? Oh and then we look at the time that it would take to install a Spur. We want to minimize the time as much as possible. The only way to minimize the time is to be prepared. How do you prepare yourself while you make the planning for the ship survey? The ships are going to try. Because obviously you don't want to take a ship out of the trade-in fee when the dog is cute. Uh, and in order to do that, you need to go and contact drydocks shipyards. You need to go and contact discover manufacturers. Uh, and you probably need to contact Samsung.
Susan to a specialized
And we're getting the experience so that if you decide to do it, it's going to be done in a very smooth way. So it's totally normal that the market is talking about urine Ave. Uh-oh engaging with uh, a scrubber specialist and I'm sure and I would be pleased to hear that that that you continue to hear that because that's absolutely true. We taking the matter of choice. Um, just to minimize the time they would take it to install in case we see an economic benefit and also in case we can to the extent possible lock in home economics benefits and these speculative investment.
As far as the the second part of your question, maybe I should give the word to to to Ruston, but I will maybe introduce the spread has nothing to do with the oil price. The movement of each individual pricing of of each individual products re uh has to do with the other prize but the spread has nothing to do with the aqueous and I'd like with ten p in relation to the value of high school for. It has appreciated greatly in value versus crude and that was happening even before the sell-off and improved over the last two weeks. And if you look on the back of the heysel the fuel crack and the prompt in December , it was -30 at the end of December minus twenty last week, even yesterday. It was pricing around -17 and 25 cents. So in that case it is the relative I the high school for has appreciated in value and it's not it has very little to do with the actual flat price movement on crude has more to do you have a phone number?
I have a do you have a fundamental view that the price of high-sulfur?
Fuel oil is going up one half of demand for high Sulphur fuel oil is going away.
Yes.
Okay, so the answer is yes and and everybody around the table is saying yes, but maybe we should tell you a little bit more because in your question you imply that uh half of the demand is going away and that's maybe where we defer because uh, you know opinions of course also, you can say you've had a fair amount of high school for fuel has been destroyed through refineries wage increase links. Um, you have also have a fair amount of demand that's increased from the high school for feedstock side from refineries, especially in the US Gulf Coast in India where the refineries are are fully utilize Cooper's to destroy high school for people make distillates part of the reason why the distillate crack has a week has weekends the fact that the cokers are being fully use destroying high school for fuel and producing thoughts, which is feeding into the point five and the low-sulphur markets on the third set on a Ford view. You have a fair amount of residual destruction capacity coming online and Asia with all the new RTS program.
And that's going to be coming online from the Ugg PRC refiners about the South Korea and they're going to need feed stock as well. They're feedstock is going to be again high school for straight run. So when you start heading that extra demands come into the market you could see more appreciation in high school for cracks, especially in Q3 and Q4 of this year. Okay?
All right. I'll I'll move on I mean I'll take it offline. Maybe I have to get smarter on it. But you know, if you just if you just take a a line chart of crude oil prices against the line chart at the spread averaging twenty twenty. It's like a 90% correlation since July of last year. It's like the two lines are basically on top of each other. But anyways, I maybe I have to get smarter on clearly not an energy analyst wage though. The other question I had is just maybe more philosophical, you know, it's interesting because like you and maybe like one other company in the space actually have these Capital structures that are sustainable low breakevens. It gives you a lot of options where you can pay down debt and kind of get to a net neutral position. You can issue dividends and the hope that you know, you get credit for that in the equity markets and currency appreciate so I want to you know, check your temperature on kind of your philosophy on Capitol because you know, you're generating a lot of cash flow, but you're deciding to focus on dividends instead of a game.
Basically getting to a net neutral position which would obviously further lower your breakevens and possibly even help your currency relative to nav. So if you can just expand on that and you know, what is urine as capital structure of like twelve eighteen months from now, is it basically at the current LTV levels or you know, just to help us think about your philosophy there.
Yeah, thank you. I believe it surprised by the question because I hope that our capital structure off The Leverage when it's marked to book or not mark-to-market. That's very dangerous. Of course, uh and capital allocation had been clearly communicated to the market. So, we want to be between forty and fifty percent it's clear. But but you you said you can do between dividends and share BuyBacks. You know, I'm just trying to understand like what what is the name is the mean to the and so to speak.
I think well when we speak to to shoulders and then obviously we take the the speed back home. We clearly see that people want to want us to return Capital especially for this kind of business. Uh-huh where the cash generation is just huge when the market is higher. So you take that off and then you decide what percentage you want to return to the market. That's the first decision that you need. Why do we take 80% Uh, well relatively similar to the office last time we did 80% Um, we thought that with the depreciation policy that we have and the 20% that we reserve we have enough to not only a renew the fleet but also to add more on an organic way. So that's that's the Fidelity between behind the 80% and we can be more generous when the market permits and Ed.
to demonstrate that in 2009
As far as the the choice between dividends and share buyback. I think it is pretty clear. You you need to pay dividends. I mean, there's a lot of people are asking for the dividends. Uh, and then so let's say that this is 50% of the of the 80% not 40% but a real fifty percent of of that profit that uh will probably always be rejected as dividends. And then with the the remaining 30% we can probably play between share buyback and uh and dividends and as I just mentioned on an earlier question, I think I wouldn't come back to share buyback. You should not rush into a decision. I mean, you should not every time the the share is week. Then you intervene in the reason why you shouldn't do that may be something we did you simply because a lot of time you cannot do that. I mean the the full month of January we are in close. So there's nothing we can do there and so dead.
if the market and this is
Is you to over-react every time there is weakness in the share price then when you don't do it, they're going to start wondering why you're not doing it immediately, especially because in Belgium, uh, we need to declare us within uh seven days. So we are I think it's very stable company where a group of people with a lot of experience. I think we've demonstrated way. We do share buyback. Uh, it's an opportunity. It's really creating value for the shoulders and we will continue to have that philosophy. So now we've been we've seen share price weakness for the last um, you know, maybe ten months ten sessions not even as well fax. Uh, let's let's see where the market takes is. Let's see how Capital markets react to this virus and and the kind of continuous flow of fact that we're going to receive and see what happened to the tanker Market into the tank of values to to really see where we are compared to the nav. So it's it's all the kinds of analysis that we are doing and in the meantime
Five people know that we are dedicated to return a certain of our capital and a big portion of the captain will be dividends. And yeah, no, I get it and and Brian just to confirm the fact that you're going to pay in May is going to
The first quarter plus what you just declared this morning for the 2019. So will you get like a double benefit in the month of May? Is that right?
Correct. Okay. Thanks guys for answering my questions. I appreciate it. Thank you. Thank you and the next question.
Hey guys, thank you covered. Obviously a lot of grounds, but I just wanted to follow up maybe I just a couple of things, you know, the the JV to buy those two is Max's at the end of last year was, you know, seemingly time quite well and you use the word opportunistic earlier in your comments as you think about your nav in general, but when you think of the company going forward, you see yourself doing these types of estimates, um, uh a bit more and when it comes to say acquiring older tonnage, do you prefer to do that and say a JV format and then maybe keeping the overall urine a platform available for more modern sort of high inspections.
No, Katie. That's not the case. I mean it was opportunistic because someone had an option and and required the capital to exercise adoption. It's as simple as that dog. We had the capital we liked the partner. We knew them for a long time. We've been working with them uh-uh on different business, but certainly through the pool. Um, so we have no problem with uh entering into a joint venture with those guys, uh a bit after we reach verify the way um, and and the opportunity was clearly in their hands not announce, uh, when the they were looking out for Bonner that's executed deal very quickly because I think that when the approaches there was less than six weeks before the expiry of the option. Uh-huh. They they clearly found a pack exact promptly. That's why we call it opportunity. We have done that on our own or balance sheet despite the age of the assets. Yes, ma'am.
Who is we need to be opportunity especially at a time when we have at least two series of Acts which are slightly older reaching 15 years of age. That is where we are.
Dispose them because of their age profile at a time when we're very confident. The Mark is is going to be rewarding then, you know, it makes a lot of sense to replace one will shift with another one that is slightly less old in this case two years younger just to be able to benefit uh from those two years. So that's a little bit of money but it's not it's certainly not a policy of thing when it's too old. We will plug them in joint venture and when it's young enough, we will put them in our platform because the reality is that it is the platform who is supposed to ships together with a partner in other words. It's the platform with commercially managing those ships. We provided the capital provide this will provide that so um, no, it's opportunistic and we are happy about it.
Okay, thanks for that then, you know maybe you know, this is maybe a bit more open-ended question. But you know as you mentioned your the The Leverage is on the low end and your vehicle to see Fleet is is fairly often turn. And as you say that this was Max's are a handful. So as Max's on the older side, you know, you talked about selling an older vessel and then in acquiring one that's a couple of years younger, you know, that seems a bit more tactical and and near a major. How do you think a bit more broadly about the the fleet renewal within the Suez Max segment, you know, especially with the backdrop of you know, uncertainty with with propulsion systems going off any color on that would be helpful.
it's it's the good news and the bad news on to a certain extent because
The reality is that uh, you don't have is no different than the other place in the market. We don't know what the next technology is going to be. We don't know who's going to win this battle of around different package systems. And so when it comes to renewing the fees, yes, we can buy second-hand and to a certain extent we would be better off, you know by buying second-hand because it needs would be a couple of years older than if we buy a new building in the sense that then they will arrive to the 20-year anniversary quicker and if we buy new building off, but the reality is that we we don't know what technology is going to win and I think that despite the fact that our huge back seat is is is a little bit older and it's getting a little bit older than what we would like to to see we going to be very disciplined about it, which is good for the overall Market because the rest of the market is like us, I mean, we cannot just go to the shipyards and off.
for existing technology because that's one we know it's probably not going to it's going to drive and we cannot buy uh energy just
CN because uh the premium that is being asked and that's true for suezmax and vlcc. Uh, it's just too big for us to absorb on a speculative basis. So very happy to do that together with an old major who believes in the technology and who benefits from uh-uh selling more energy, uh, for instance, uh, but on our on our own like all the home owners, we believe that the previous to be
Okay now thank you Google for that. Thank you. Thanks. Thank you. And the next question cost a message from Landmark with friendly. Hey, good afternoon, I I question on refining margins. I mean maybe it's a bit off topic but you know quite weak at the moment for for several reasons, but you know it maybe it's a bit worrying given it tends to be a decent indicator of activity and and Freight. I mean the whole thing volume sort of Singapore, you know will be unwind at some point. Is that something you know moving to the needle positively for for margins?
so in the
First part of that your question there on the floating store just in Singapore. A lot of that has actually been worked off into the market and the floating stocks have been reduced greatly mainly on demand pull into secondary markets outside box itself that we're looking for five people in December and January . So the latest estimate I think I read from Clarkson's was that there was about a million tons left in floating outside of the large. It was developed in Q3 in Q2 of 2019 on the for refining margins, you know, they've been under pressure here as of late. It's no question that part of that impact is due to the edge of the issues going on with China and the coronavirus outstate outbreak, but we're also going into that time of year where we're going to start seeing Refinery start going through their q1q to turn around. And so there may be a Slough off in demand for proof.
Maybe on that last point. I mean any views on whether you know, we're going to see another extended kind of Maintenance fees in the spring or is it, you know to be a more normal as one thing refineries better prepared now.
From what I've seen on the data the turnaround. This year in Q2 is not going to be as robust as it was last year. I don't have the number off the top of my head. So I do apologize, but it is not as big as it was last year.
The cellphone thank you. Yeah, which is normal because the the refineries with switch to Alisa for no longer need to prepare which was cleaning of the tank filled by being at cetera to avoid contamination. Uh, and they're still uh a number of refineries while we'll for the first line producer as influential for those guys off the the oil change, maybe a little bit longer, but obviously the vast majority of the market prepared for IMO twenty-twenty ahead of 2020. So you're only looking cats, you know a few exceptions here.
Makes sense. Thank you. Thank you. And once again, please press star and then one if you would like to ask a question.
And the next question comes from any Garcia with Anchorage capital.
Hi guys, two questions. Can you give some color on order and activity for vlccs and Suez Max's during the fourth quarter and first quarter of this year. And then also I think last year there was a lot of escalation and issues with scrubber installations during the dry docks any kind of updates or stories about that more recently. Thanks. Yes, this is Brian Gallagher here two things. Yeah. We know my life has which are not on our on the website for our normal presentations will focus on the fact that the Run rate is is 12 months Lowe's in terms of vlcc ordering so over the last twelve months. We've had a 24 these have been ordered which is a very very low number in the context of the demand background. So we continue to see a big reluctance in ordering as you go to bed earlier because of the uncertainty with regard to meeting emission standards and a few propulsion systems to meet that and in terms of Destruction from um, scrubbers, obviously, we wouldn't maybe be the most obvious wage
Just to talk about on that. Um
It does seem to be evidence from some of our peers but um the disruption is is producing modestly and I think the numbers we're hearing is somewhere between 35 or 40 days as an off higher in terms of getting repeated which is coming in from sort of number which is mid to high 40s in the middle part of last year, but obviously some of that's been driven by a less congestion and obviously less people looking to retrofit I just would like to add one one little note which is sign it obviously most of the the shipyards have executed the retrofit of office covers on locating China. So at the moment they continue to be closed down so that could create a delay for the shift that we're looking into entering those yards off the moment. He's in the shifter are currently in the art. Um, so that can can create a delay which is not due to the complexity of the installation and all the problems that people have encountered birth.
last year, but much more to the fact that at the moment is a lot of travel restrictions and there's a lot of workers that went back home to celebrate the new year and our
Returning to the ship. To the factories so that can create a further delays indeed.
Great. Thank you.
Thank you. And this concludes our question-and-answer session. I would like to send a conference back over to management for any closing comments.
Well, nothing nothing, too. I don't think we've covered a lot of ground in any way if you have additional questions, you know where to find us. Thank you very much, bye-bye. Thank you. Concluded. Thank you for attending today's presentation, you know disconnect your lines.