Q2 2020 Scorpio Bulkers Inc Earnings Call
[music] and welcome to the Scorpio Bulkers Inc. second quarter 2020 conference call I would now like to turn the call over two key features chief financial.
Sure. Please go ahead Sir.
Thank you operator, thank you for joining us today.
On the cool with me or my money, Lyra, Chairman and Chief Executive Officer.
Part B, a president Cameron Mackey, Chief operating officer.
James Doyle senior financial Analyst, David morale is emerging director.
Yes, right off the market closed we issued our second quarter earnings press release, which is available on our website.
Information discussed on this call is based on information as of today Tuesday oversupply Twentytwenty may contain certain forward looking statements to them, both risk and I'm sure.
Actual results may differ materially from those set forth in such statements.
For a discussion of these risks and uncertainties you should review the forward looking statement disclosure in the earnings press release that we issue today as well the Scorpio Bulkers FCC filings, which are available at www, Scorpio Bulkers dot com and Www Dot FCC don't go.
Call participants for advice to the Audiocodes. This conference call, it's being booked cost lives on the Internet and is also being recorded for play back perhaps.
No card for the web cost will be made available on the Investor Relations page of our website for approximately 14 days.
On the call today that will be a short presentation slides.
The slides are available at W.W. Scorpio Bulkers dot com on the Investor Relations page under reports from presentations.
If you have any specific financial modeling questions. You can kind of contact me lightroom, we can discuss the more offline.
Now I'd like to introduce a memory Laura.
[music].
Thank you hue, and good morning, or Austin and everyone.
Thank you for.
Joining us on the cold today I.
I think it goes without saying that this quarter is a very very important one for Scorpio bulkers.
Probably the most significant quarter since we launched a company back in 2013.
It's marks the beginning and you transition.
Transitioning to the renewable energy space.
I'd like to be clear.
At the outset.
We stopped carefully about this move it. These are moved that combines oldest strategic strength of the business.
Our history, you'll be innovation and of managing complex new be projects and its aligning it with a high growth attractive market.
It is evident to us that women installation is a multiyear growth story as offshore wind power has become one of the most.
Cost efficient sources, all clean energy.
We believe that the infrastructure needs.
To support the rapid growth in this space creates a very attractive opportunity, particularly for those like cost that can move now.
We think this is the right opportunity at the right time for our business and.
We are well positioned to capitalize on it.
Let me emphasize at the start for the company has a strong liquidity position and as well as many options to fund. These transition process. There is no current plan or need to raise equity.
Nor for that matter to sale bottom or all of our remaining scorpio tankers share position.
Importantly, due to attain heavy payment schedule, we have nothing material to pay.
On this contract into Twentytwenty too and as you know like many new build contracts favorable price and payment terms I mean that the largest payment will be on delivery.
So.
You know, whilst we are embarking in these transition.
Looking.
Elsewhere in the company during the quarter, we raised significant equity we delayed our bank debt amortization and this is a topic, which you will return to on these remarks and the combined.
The combined auction taking over the quarter we.
The liquidation of a portion of our stink investments.
I mean that means that our liquidity position is substantial and as we move into the second off of the year. This balance sheets trends comes with a backdrop all improving drybulk markets.
No the charter rates have improved substantially since.
Ended August eight weeks since since the beginning of June.
In our core dry bulk business, we have continued to make progress.
Indeed.
It is because of the strength of these.
The market recovery and the restored balance sheet liquidity that we feel so confident to present descent funded transition to the market today.
There has been significant progress in the Ultramax and Kamsarmax charter rates as well as you know the asset values, which have.
Appreciate it lately a in the last week's over over the last 24 months, we've not been immune of course from either the global trade tensions or.
You know even worst of course, the pandemic, which we got all experiencing but that said.
We do continue to make progress and can now see the tailwind they'll be improving order book.
As well as the normalization in the demand outlook.
As you know positive factors for for our market.
We've spent time investing.
To build a modern high cost fleet, which is attractive to our customer and we continue to examine ways to leverage the positioning which we Irene.
Today, I would like to focus on it is important to to remember that as a business. We have been and are constantly evaluating strategic opportunities with the aim to drive attractive long term shareholder value and what we have found in diesel opportunity. He is exactly that.
We believe that the strategic rationale the financials and the long term outlook can be Saturday ALP renewables is highly compelling.
For four hour.
Future.
In the for the future of our company really.
As you know we are only a yellow ice stage. So we tease out early stage. These early days, we would give you some parameters through these cold to give you an idea on how to think of this investment then.
More we will become available over time as things unravel for the time being suffice it to say you know we we as a team are very very excited about the potential.
Disinvestment creates what our company, we think Scorpio Bulkers, we greatly benefited from.
From a pricing in the renewable.
Space.
We will spend sometime later on this call discussing the offshore wind market.
And our investment in a new wind turbine installation best says degrees.
Presentation, which is available on our website a that will be discussed by David Morganton, Cameron Mackey, but as of now I'd like to end the call over to Hugh Baker, who will run or would run us through his remarks. Thank you.
Thank you remember right.
I'd like to refer you all to the earnings press release the earnings presentation. That's why does the press release and presentation related to our announcement of a letter of intent for wind turbine installation vessel. All of these documents have been uploaded to our website.
I, specifically refer you to the earnings press release, which details our Q2 financial results our vessel performance in second quarter.
Oh, one for 10 reverse stock split.
Oh successful too far looks remaining scrubber installations until 2021.
Our reclassification of four vessels held for sale at December 31st 2019, that's no longer held for sale.
Our board declaring an unchanged five cent dividend.
Publication of our initial sustainability report for 2019.
I'd like to focus on the measures that were taken during the quarter to preserve and generate liquidity choose the company encountered.
One of the weakest drybulk markets and in the last 50 years.
During the quarter, we completed the previously announced sale of two ultramax vessels, and one kamsarmax vessel for $53.5 million in aggregate generating $18.3 million in liquidity off to retirement debt.
In may.
We sold 2.2 in a quarter million shares in Scorpio tankers for $42.7 million in aggregate.
I'd like to know that we retain ownership of 2.16 million shares in Scopia tankers.
In June.
The company raised net proceeds of $82.3 million through the public offering a 4.7 million shares.
And in July the company agreed with all applicable lenders to probably reduce its minimum liquidity covenant from the lower or $700000 to a vessel in 25 million to lower $500000.
Vessel and 25 million.
As such basis or the current 49 vessel fleet a minimum liquidity covenant is now such a $25 million.
[noise] in consideration for this the company made an advanced principal payments of $7.7 million that would that would have been chew and in the third quarter of 20 to 21.
The second components about that restructuring was that the company agreed with certain lenders to reduce principal repayments by approximately $29.8 million in exchange for making that an advanced principal repayments of 50% to the smell 14.9 million.
The remaining 14.9 million a principal repayments will be added to the balloon payments of the respective loans.
In addition, we're in discussions for deferring $8 million repayments in exchange for prepayments of $3.4 million or debt.
And this is expected to close with in August.
If you have any questions about these debt restructuring initiatives, which are explained in detail with me on things press release, please feel free to reach out to me offline.
The drybulk market experienced a significant improvements at the end of the second quarter and the company has booked an average time charter equivalent to 8585.
Dollars per day for its Ultramax fleets, an $865 a day Fritz Kamsarmax fleet for food for the second quarter to date.
In the <unk>, that's true for the third quarter to date.
In the context of in him.
It's improving operating environment I can mention but that's sort of today's date. The company has $41.6 million in cash $90.8 million seen available in undrawn liquid capacity under revolving debt facilities. We also retained ownership of 2.16 million.
Scorpio tankers shares, which are worth $29 million at prevailing market values.
In total this equates to the company, having approximately $161 million with liquidity.
The strong liquidity position gives many options to fund on new wind turbine installation project, which has its tail heavy in payment schedule. So we have nothing material to pay until 20 to 22.
Like many new build contracts favorable pricing payment terms means to launch as payments payment portion is due on delivery.
We're confident we can meet these near term commitments through ongoing earnings to an existing cash reserves after which we are confident we'll be hopes to secure bank financing for the vessel.
I'll finish by passing on to David who can talk about the Companys recent less letter of intent for for the winter up on installation, but so.
David over to you.
Thank you very much cheaper and good morning, good afternoon Ti everyone on the cool I'm going to be without having to the presentation.
Which as a matter what I mentioned was filed on our website last night.
I'm, leading free the slides.
The timing first from the Cabot to the page three.
With these today.
The state we've entered the letter of intent.
What we see the most advanced dedicated to find installation vessel in the world.
This is putting his extensive period to research and customer centric analysis.
This vessel will accelerate time to first power for all customers.
So what are we done then how are we going to execute.
What do you attribute that our customers care about a clearly outlined on the slide.
I mean, they break into fight Paul.
Broadly variable life index price.
Dictate how much or how much you can carry on your timing around space out to the fail.
The depth and the reason that's important is an industry increasingly moving into mid water waste from ensure waters.
The crane, but in terms of its hook height tickets headlines grind size and its capacity how much can the crane left.
Turning on to the next slide.
Why is this important and why is the opportunity I don't trust.
Simply over the last decade as you can see in the girl front on it in the charts on the bottom line.
Headline sites for the major manufacturers and more than doubled in size.
At the same time, the Grayson output potential power output has great nearly fourfold.
The next decade importantly, we think the shift is leaving to engineering and technical complexity that for a lower increased in the latest size as a driver of output.
But nonetheless, these interesting opportunity for us to deliver a vessel, which is highly relevant and dedicated to this new machinery, which our customers are ordering.
I referenced but pool the distance from shore.
The scale the bill being increasingly constructed from and you can see books from a bottom right on the slide the average offshore wind farm did win from distance from shore and how we expect that to a bowl.
Over the next five to 10 years.
It's a substantial increase again meeting what did that.
Around between pool, and turbine field increase efficiency and become an increasingly driver.
So that we bought it.
Well, that's outside like fight and Cameron Mackey, Seattle, I will take you through the letter of intent.
Thank you very much David.
What I'd like to do.
Today is really distill or Ela why into a few basic concepts around the capabilities of this vessel.
Which I would summarize is really a combination of precision stability capacity.
And robustness.
So.
Pertains to chip precision really what we're talking about as a vessel with dynamic positioning able to position itself in very fine and close quarters areas.
Next is prelate foundation.
But also the delicate margins of error when it comes to assembling.
One of these wind turbine generators.
Oh stability equally.
Because the vessel has to Jack up in a fix itself to see that.
But also be aware of the overturning moments another stresses that come into play for this type of assembly work.
Capacity because of the sheer size.
And weight of the components that David mentioned.
That calls for larger assets.
And what I mean by robustness.
Is the ability to operate not only in water depths.
And difficult weather conditions.
But also the efficiency in the value proposition to the customer to be able to install.
Hey, wind turbine generator and under 24 hours once the vessels in position and jacked up.
So really its these four elements in combination in this asset which make it very special.
And provide value to the customer precision.
Stability I see.
And robustness.
We're excited to have.
Our existing partnership.
With Daewoo in Korea trying to this new challenge along with.
Some of the critical suppliers in Holland Gusto and.
Well these men.
When it comes to the vessel design in the Crane, respectively.
So we have full confidence that this vessel again offers a compelling.
Value proposition to our customers.
Back to David.
Thank you very much Cameron.
Hi, I'm turning to slide six in the presentation.
And we want to convey here is really that we have refocus this company towards a slight things secular growth market, which is pretty much insulated from the vagaries that the economic cycle.
We focused on this slide on the numbers into European Union, unless you stressed that they see say pretty even technology now and European Union, but also that we see exciting growth opportunities in the Americas and Asia on all around the world.
Looking at the left hand side at this you can see that since the pioneer days of offshore wind the heavy dependence on subsidies over the next 15 plus years, we expect offshore wind to become one of the most competitive source its a power from a cost perspective.
And here that's determined by the Levelized cost of electricity he like the average net present the cost.
On the right hand side, you can see intensity either either electricity supply mix and this is a path we expect to be repeated well Teva, we did expected to be able to said how production by 2040 and indeed, some people believe it could contribute substantially more as the well chase is it the requirements.
On the change occurred.
Turning next on slide seven.
And this I think as a slight.
Very much sums up the magnitude of the opportunity in front.
On the left hand side, you can see the rapid increase in the number of in store offshore turbines worldwide. The would be needed by the way. Many of these maturity awarded or fact that didn't see initial <unk>.
The Ted Grace is around 270%.
And it's Lps or what have you I'm sure that find installation market could be expected the quite significantly more than not over the period.
At the same time, you can see on the right hand side. The average out the news headlines is projected to nearly double that supply chain is already being assembled and nothing significant announcements over the last six months from the various TEP on manufacture Chris and is one that that's obviously grabbing the markets the maintenance and repowering of old sales.
Okay.
Yeah.
Turning to slide eight.
This is all adds up to the material shortage of high spec went up on installation vessels and interestingly. Our analysis shows that this will start to the cash around the end of 24 without that so oh.
Until right sometime in Q3 2033.
We think is significant.
Classic demand supply gap.
But the toppling at this gap towards the mid and if the decade.
Turning to slide nine and in summary, Darfur, we're very excited we've managed to get an ally for what is as I said, we believe that my sophisticated body installation vessel in the wild.
The project cost we've outlined the <unk> to 65 and to 90 million, but the battle to deliver towards the end of 20 to 23.
We demonstrated the exciting grace within this market, which we believe is predictable and worship the company trouble predictable high return environment shareholders.
We can see shortage you wouldn't want installation vessels, we can see the capability gap, which we as an organization could very well.
I used to Phil.
And for but certainly not lastly, the day rates could we see in the current market before this tightening.
It's got to improve we believe will provide significant return opportunity brush shareholders, I think that deliver and the market develops.
With that I'm going to happen the cool back to Robert.
Thank you.
Hi, I don't have a anything else to out of things fantastic opportunity I'm.
Clearly, there's a huge valuation gap between the the present industry trade the buttons <unk>.
Proposition trading so much below its net asset value in an improving market and moving towards an industry that trading at great multiples and on that note. We just lets start to open up for questions. Thank you.
Ladies and gentlemen, if you have a question at this time. Please press the star and did the number one key touchtone telephone. If your question has been answered or you wish given yourself from the Q piece, that's the pounds.
Your first question comes the line of Greg Lewis with Etiology. Your line is now.
Yes, Thank you and good morning, and good afternoon, everybody, Yeah, Robert I mean, right and the manual clearly this is is.
Bold move by the company I mean, I you know it looks well timed I mean today VP, just came out and announced they're going to cut oil and gas capex by 40% in shift that into renewables as you thought that this headed in two.
<unk>.
Offshore wind.
Yeah, I guess, a little can you give us a little bit of color around you know when when you started thinking about it I'm not I'm, assuming you had a lot of conversations with lot of potential customers kind of just could you kind of give us some of the genesis around the decision to make this move.
And many what I'd say that.
Sure Great. Thanks, very much for the question I as a group we started looking at renewables.
About 24 months ago.
And as we looked at the space.
We converged into wind, maybe 12 15 months ago as.
The analyses went on and we started liking the dynamics that.
This industry.
We're showing.
Last 12 months' as you rightly pointed out weve.
Interacted with a lot of the stakeholder resolve these industry.
Potential customer as designers.
End users.
Shipyards and decided that.
This was a good opportunity for Scorpio Bulkers only though in the last couple of weeks in the last few weeks.
And you know we think that.
Wind installation is a clear multiyear growth opportunity and we think that.
You know it we provide attractive returns and we are in a great position to capitalize on it so.
As you can see.
You've mentioned B B, but you don't do it has a long list of.
Things that are happening in the only because only because they were today [laughter].
Sure sure about you know we could we couldn't name another.
You know 10, very very simply an easy right. So what is happening is.
A transition has started many years ago. He is not a is not recent.
And it is accelerating and he's a fact.
And you just had to decide whether you wanted to be a spectator or whether if you wanted to dive in and play and we decided that.
The opportunity was compelling for for our company at this stage.
Okay, Great and then just also as I think about can you walk us through the Aloe why clearly this is something you guys have done a lot of due diligence on when we think about the allies that just a timing issue or like how should we think about or are there more hurdles that needs to be.
Reached before we move forward or is that once again back to as you think about final design of the vessel, it's working with the customers that you have.
With that vessel with and coming up with what that what the on product looks like.
No that that's correct Greg.
Hello, widen marks the beginning of a more defined process.
Of negotiation with both the designer and the shipyard, but obviously, reflecting.
The needs of our of our customers and so that will culminate in the shipbuilding contract, which we expect to be the early part of the fourth quarter.
Okay, Great and then just one more for me on you know clearly you you've all had a busy you know busy few months here repositioning the balance sheet and at this point you know you mentioned a lot of deferrals in the backend and push backs should we think.
About I mean, obviously, there's always still work that can be done should we think about how should we be thinking about.
Hi.
You know you what you plan on what is the goal for how what did he looks like over the next kind of 12 to 18 months as some of these payments start they need to be made for the the windowsill.
It's incorrect good question, Brett I got I think we you know we.
As we discussed both in my remarks and in Q remarks.
The liquidity position of the company's strong.
We have many options who to fund these projects and were confident we can meet these near term commitments through existing cash reserves, we've mentioned that.
The good material payments start to come in Twentytwenty too.
And into then we are comfortable [laughter] of our position.
Okay, guys, Hey, Thank you very much at the time and good luck.
Sure. Thank you.
Your next question comes from in line with.
It's clarksons Platou your line is now.
Hey, good morning, good afternoon, gentlemen, and just wanted to say a welcome to the renewables market.
[laughter]. Thank you Donna.
Yes.
So I just wanted to pick up on some of the discussion from from from Gregs question.
And sort of the transition that you're making or I guess you know the BP announcement today is one as you as you mentioned the many really of many of the sort of a larger oil companies that are transitioning from being sort of iOS sees sort of you know broader energy companies I think BP specifically called.
That out today.
So maybe in that sense, you know the mood is definitely bold, but but certainly in line with 'em. It seems like whats your customers are doing and and on that on that point I wonder if there's any meaningful customer overlap.
From say the Scorpio tankers part of the business, where you're dealing with a lot of these studies or companies that.
Now moving to be broader energy companies, just wondering how that dynamic could play out.
I think it's a good question I'll start answering and then my colleague Ken can dive in but you know at this stage starting there as you say and as you know this is another why we're starting to.
Entering into this space, we have focused on preparing and doing things right and.
We have studied the market.
Before we actually started talking with.
The overlap customers that we may have in.
I think the tanker space together with with the renewables energy space. So our focus has been in making sure that we get there and if we get there in a reliable way and that we are credible and that we show.
The right commitment and we'd together with coupled with a quality assets.
And the deliverability of such assets to our customers. So we are.
Looking and preparing to sort of go on on the marketing.
Going forward once the contract we'd be signed and we have our ideas on how we would be able to overlap, but a you know we havent had many discussions yet.
We the oil major companies for instance, we went and meet and met with the renewable energy specialists so far.
David I don't know if you want it had anything to parents or.
Yes, I think thank you and where they.
If you look at 10 or as I mentioned in the presentation. We've spent a good amounts of time, making sure that this project, it's highly customized FICA and customer centric there was significant innovation going on all the way longer.
That's right and that's really created sophistication, which which gives us an opportunity. We believe the failed at best in class company.
What I would add to that is as you referenced in your question.
As an organization I might add to sort of 800000 passed an organization within the board agreed we face demanding charters like this every time the week, we haven't safety culture, and a proven track record of delivering complex new build vessels on time and on budget and I think when you put all these things together we feel this is not yet.
Natural progression for us in line with developments in public policy with where our best discounting and as you referenced where our actual clients anything as well.
I think in time.
Something which all shareholders will see substantial benefits from as we move to more predictable less cyclical ER and higher returns at the company.
Thanks, David and one more one more question for me and that's really just on on the organization and sort of your plans to build that out then and maybe if you could touched on a contracting strategy in sort of how you're thinking about.
Playing the market eventually as you get a little bit closer to delivery and payments I guess.
You may be aware, there's been a number of other assets that or that I've been ordered new and Miss this win space not many but a few of them and I guess some of them house on received contracts relatively quickly after after being ordered little bit different and maybe those were sort of.
Sort of long established players and the wind market you guys, a little bit new to it.
But how do you all thinking about building out the a the organization and how do you think about contracting thanks.
Can do you want to take your Guineas Asian part.
Sure.
Thank you so.
Turning to this there's no question.
That there are specialists competencies involved as we think about how to deliver service to the customers.
Just not only when the vessels being constructed but obviously after delivery.
And those might until things like jacking engineers or project engineers crane operators heavy lift specialists et cetera.
But lets the need that there is.
A very clear endorsement from these customers.
That we have the HSC Q DNA required to credibly compete here.
And deliver that service.
And what I mean by HST Q, you know the health safety environmental and quality.
Backbone.
The the mindset the policies procedures.
Which really are pre requisite any sort of contract for any relationship.
Or entry into this space.
So well we know we have a fair bit of work to do in building out the organization. We enter from this point with a fair bit of of confidence that at least we have the resume the credentials.
Beyond the same stages vary.
Credible long tenured incumbents.
And so we'll start embarking on building out that organization with some of the specialists.
But also as you know when it pertains to the second part of your question about contracting we start today with the Prequalification discussions with those customers in order to be in a position to tender for contracts say within the next 12 months or so and then really it's a commercial decision on what our risk.
Tolerances against the tightening market when exactly we want to.
Tried to contract the vessel.
<unk>.
Okay. That's very helpful. Kevin I appreciate it and now I'll turn it back thank you.
Your next question comes from a lot of Liam Burke with B. Riley. Your line is now open.
Yes. Thank you.
You highlighted your competencies and reasons why you could manage this this new wind business, but.
Do you remember detail on how this mixes with there with the core dry bulk business and why it fits so well or fits as a good agenda to that business.
Surely I'm one of the Drybulk fundamentals are are improving where we're well positioned to benefit from this.
That said in these changing market environment, we're leaving we believe that that out higher quality and more stable returns in the growth market of offshore wind, which we.
We also believe were well positioned to capitalized on so.
You know.
We just thought that this was the right opportunity for us to take the world These transitioning into.
Cleaner renewable energies and and DC is eyewear chance to actually stepping and going that direction as wed.
[laughter] and.
How do you envision the contracts laying out you look at multiyear contracts you look at a service contracts or when you're looking at you know the potential revenue drivers from an individual vessel.
David do you want to talk to this.
Yes, no I well. Thanks. Thank you for the question Bialas here as they do a shipping it is managing right on utilization.
And that's Kt something we we do all the time that said its Cameron mentioned.
Leaving to contract.
With we tend to prices, which typically run in a in a six to 18 month period, depending on the size of the work and besides the field this big belt.
So over time, particularly given the lead times and these fields, it's possible to build a book those contracts and we believe that put to give a multi year potential visibility of revenue opportunities for the business and say managing rate and utilization and giving reasonably good visibility.
He is the contracted revenue opportunity is a large part of the transition.
We would expect obviously every time that for the market to look at what we're doing in the context of a book to Bill another contracted revenue ratios.
As as that book of contract grades that.
Great. Thank you very much.
Your next question comes from the line of Omar Nokta Clarksons Platou Your line now.
Hi, guys.
Congratulations on the strategic shift and no. Thanks for letting Turner and me Taksim you here in the QNX.
I'm sorry, you guys. Obviously, you accomplished quite a lot during the quarter as you highlighted with your bank agreements can you break a good amount of cash and you know stand with much stronger liquidity.
Of course, I would still like to focus however on the offshore wind investments clearly renewables and offshore wind in particular is a growing area and one that even we've seen in low commodity price environments is continuing to gain more and more market share. It as we think about.
The the strategic shift here at Salt and you made it very clear that the transition has now begun and I know you spoke a little about about this amended while they can you give us an overview of you know what made you shoes. The salt platform in particular I know you made the decision over the past couple of weeks, but what about salt.
Why did you just decide to do so.
Okay. It's a good question, we think that.
You know you tease or.
An opportunity for a company like sold which wine is a mature.
I'm comfortable company into space in which it operates.
You know.
It needs to sort of look at what the future holds and you know there is nothing.
Uncertain about the global energy transition to renewables.
And so this is the time in which you either hop on or stay and remain an observer. So you know we've chosen to take the opportunity to actually diving.
We'd be step and because we think that providing more visibility and in a growth.
In the multiyear growth market provides attractive and attractive opportunity for the company.
Yeah that makes sense and you know you know Liam asked this.
Sorta, asking as well how do you think you know about operating the Drybulk business now as you transition into the offshore wind space, which will take some time as the vessel delivers here in the next three years, how how are you thinking about the Drybulk business. How you operate that and then also is is that.
Sector.
As a source of capital going forward.
I'll give you an exam.
I'll answer your question in the following way Omar.
There is no responsible parent which at the birth of the second shine ditches or these regards its first giant.
So if you're looking at.
Wind.
As our second signed and dry cargo as eyewear as their son or daughter, which he is in the mature stage and as finished high school, maybe also university and now its self sufficient and we don't have to pay her rent anymore or higher tuition fees. So.
It is quite obvious that the tuition fees and scholarships or the rent for the Dmitri have as to go towards wind towards our youngest younger tie ins. So that's that says as far as we go but we remain committed to dry cargo we have a great customer base.
We have a great fleet the most modern out there actually which allows us actually do not have any questions on do we have to renew our fleet to reinvest or you know our our that average age of the vessels is.
Is the youngest in the industry their own modern data all.
Working perfectly and were very happy with what we had.
Okay, that's very clear and I guess that sort of jives. That's what you said in the release of how you've reclassified the no. The four ultramaxes that were initially held for sale.
Okay, well I'll I'll leave it there.
Congrats again on the on this new path forward.
Thank you Omar.
Your next question comes from the line Jobin I'm with ARX <unk>. Your line is now.
Good morning, good afternoon jumped man Oriental.
We are good how are you.
Good. Thanks, I also had a few questions regarding the offshore wind announcement and first a in order to understand how you are looking at sea economics.
The returns will of course this subject that's next and what kind of return hurdles or payback requirement or would you typically have them on project like that.
David do you want to talk to this.
Yes. Thank you had a question and of course.
We're not gonna be specific here on on the Red said, but we can give you enough points is we've been very clear on what we believe the contracted cost I I stress again this is an ally.
But the range the concocted calls.
As you'll see from the last page of the presentation. We will say given you covered today right, but that being achieved in the market.
And these are generally.
Arrangements, but I think we've got support from.
Very spike is like clocks, and then I'll take that these these are rates, which are benefiting the current market before the tightening, which we projected for 24 and 25.
And then again that you play with an opex, which depending where your operating.
He said many around $30000 died.
So.
I think.
I'm not going to go any further than that but you can probably use those into just the calculate the design of attack that we should be achieving on one of these vessels whimsically deliberate and operating.
And and <unk> and also long term or would this be a transition towards a completely in your business segments personal or do you expect to combined.
Owning wind turbine inflation vessels and Bulkers.
As we said it is going to be a transition how long. This transition is going to take you know time when 10, as we said, we're comfortable with or without a dry cargo where wed be we're happy with where do we are there.
But we certainly want to grow into the renewable space. So.
Well there today, we have a 50 dry bulk medium sized vessels and one terabyte installation.
So and you know it's that is a fact today, whether we're gonna have for wind turbine installation vessels in five years Diamond a fleet of or the same feet of dry cargo or.
Five ships less attention, it's less I don't know, we're always active on the S&P market.
Of the of any segment in which we operate for example, but today in dry cargo we are not more buyers or not more sellers and then we were six months ago 12 months ago or or 24 months ago. So it is clear that our exposure we'd grow and this is what we want to do into the renewable space and.
More specifically into the wind turbine installation vessels.
But the opportunities on the dry cargo side are gonna be set by the times in which we will.
All right.
And thanks, and then a final one from me I could you elaborate so I'm a on the choice of building yard and where you see the vessel be employed or get a graphic yeah graphically.
I think Cameron can speak to the choice of.
All of a the yard and the reminder of the question come.
Yes. Thank you.
You know obviously there are a number of.
Builders in the World underlying your question that could have done this work.
We have a great long standing relationship with die will.
Out of our conventional shipping business.
Unlike many builders they are looking for work and quite hungry to develop more complex offshore related project.
And so between their pedigree.
In all types of assets.
And our relationship.
And the cost competitiveness, given given that a capacity.
The problem that they have where that they face it was quite natural for us to choose dumps to develop this project.
And then as far as employment naturally and I'm not sure. We spent enough time speaking to this but David did mention it. This is really a global marketplace as you know with the rather rich.
Demand.
Slate in Asia.
And in Europe, and increasingly in North America. So I think we're going to be agnostic about the first employment at the vessel factoring in and of course the positioning requirements.
That are in tail that that at that time.
I'll leave it there so I'm thankful up.
Sure.
Your next question comes from as long as Randy Keys into Jackson's your line is now.
Oh, the gentleman has gone.
Good.
Good.
Good I really matter card. This earlier, you know just telephone call, but what is the Greg I couldn't split for the 265 between 90 million required for the wind turbine on what.
I don't work the criminal factors, it's the order and own one or up to four hobbies dozens Robby.
I think in general.
The equity that split is 60 40 or debt equity speed 60, 40 that is a comfortable.
Position.
To attain I think that's what is relevant here and I don't know if he wants to speak to it but it's that a portion of the debt will come from or we expect a large portion of the debt to come from the export credit agencies, we have.
An established relationship with them Weve finance with them before both on the dry cargo on the tanker on our container business on our offshore Transhipment business. So we we have.
I'm very established relationship with the with export credit agencies in Korea and are comfortable that were going to be able to.
Octane.
Very comfortably the 60, 40 split and potentially and depending on when the best says, we'll go to contract or will be would be on contract.
You know a higher percentage stores. The 70 75, I think he's very realistic.
Q I don't know if you have anything to add to this.
I do not in my money I think you covered it very well.
Got it right and then turn to the Drybulk older child business for the Scrubbers you know what are the current clean numbers now in terms of dollars per day that 60 hours to current spread and then Mike it's more important and Youve installed 27 scrubbers.
Seven or anything so I guess, it's garden for total however in your last quarter's kosovan.
Corning current go or no.
So 41 total so did you can't cool seven scrubbers out right and if so why was that on what was the cost of doing so.
Can you want to talk to the spreads we are experiencing which is not as expected pre cove. It of course, no and too.
Yep quite quite right. So obviously there are number of factors involved when we decide to either cancel or defer or continue to install a scrubber, it's not simply the spot.
Spread.
Of heavy fuel oil too.
I feel less AFFO.
It has to do with both our forward view the financing that's available the drydocking schedule and of course, the ongoing dialogue, we have with discover manufactures.
So you can expect the some of the deferrals would continue.
It's not the most attractive use of our capital right now.
However, we want to to the extent, we can routinely option if it goes going forward because.
In fact, we do see whether its six or 12 months from now we do see a time.
Where spreads will normalize and why Didnt again.
And we do see a period of time worse, where scrubbers are in fact.
A very attractive marginal investment.
For the Drybulk fleet.
Okay.
So did you clinical setting.
Oh deferred yes.
Oh deferred but not claimed on your background on the slide there correct. So there's no right.
No plan to Okay, and then before I get my last question I don't think you're right answer the first one in terms of the catalyst for determining factors for if you're going to order owns just the Warner for like where some of the hurdles there.
Oh, maybe I could tell us that I think it's a little bit premature to do that at an option is a.
Option, there would be lots of different.
Eminent factors going in one would be.
Turning to.
No the renewables analyst said earlier is that.
Some reason to this thing that.
You know its <unk> that you may get a contract early I mean life becomes very easily if you get contracts Sally.
Life becomes.
You could actually you know clearly the.
If you release capital from the dry cargo side.
Terms of generating cash or any other means you can you can obviously declare ali too.
And so I think that those you know more the timing factors the actual finances as you get down into number three four there's a menu indicated is what would be the finance you'd get on number. One for example, if you go to contract and suddenly you're able to.
Finance It 80 85.
Then that's fantastic the other part of it is as general Finance I mean, we can be sitting here, we have a long time in this in this game you know what happens if in six months nine months.
I actually had price inflation, what a theatrical value was up.
10% you have a pretty highly good overall contract base, that's a very little down.
So the exact determinants shouldn't be given at this stage on.
On signing an L. alive, it's good enough to know that they all options at the moment.
Sure.
Lot of variables at play there I kind of question looking at the equity raise initially went raised nearly 60 million ended up riesling.
3 million forgets why that amount and then why sell sulfur instead of selling your remaining stings shares.
The investment profile and then from the looks at it it seems like this class. This went to retire debt as a current cash balance I think there's only 41 million as of July 31st 'cause Africa.
Well, if you can do to the debt, but I mean, I think the clear reason why you ended up selling.
Moshe's.
In the offering was simply because it was it was massively just.
Oversubscribed, you know and one of the reasons.
That I think that you know we resolve to.
Put this opportunity into.
Scorpio Bulkers is because you know frankly, when we're owning a majority of the company is inside is.
It's terribly disappointing to think that.
No the stock is.
Right over subscribed offering the market is traded off woods the market has.
In spot rate 10 in values and the stock price is trading at 20% Wanda and still even some like yourself Reits that are you know.
The there's a danger of a for the you know offering which clearly isn't the case, that's being the United States. Throughout you know now what do you have got is.
You know it would be pretty obvious here that you could you know basically securitize.
Yeah, you're pretty well securitizing over time, the actual net asset value the company because you know we have.
Over time, you have a whether it is gradual immediate or you know five years or whatever you've got a highly liquid sale and purchase market in dry cargo and you're moving.
Every incentive if nothing changes.
To a market the gives the multiple on its values because of the most certain cash flow aspect as opposed to a market generally gives a discount to net asset value you know you yourself.
80% targets were even you know topic. So you know you removed right now any form of equity raise at this point.
It's a fantastic entry point for anybody.
And that I would think is the way more important point at this point.
Got it and I guess just in terms of salt person looking at my screen, but literally both trading up $13.17. So why sell salt for him or her instead of doing things here or just a discount to NAV.
Barbara or what's your thoughts as.
Well I think you remember with the so that you know.
Most of the most of the actual book itself in Salt went along with the offering so.
So to do that degree you maintaining your investment and the opportunity in improving dry cargo market at the time.
Which you know it is definitely happening and.
You know I think we have to be fair in that's the you know the management Salt is pretty cognizant of what is going on in Sting and.
Pretty obvious statement is is we think this thing is a really good investment that's being restated today and the opening statements.
There's not must be concerned about that would be of earnings on sting coming on Thursday.
Yep Yep I I'm personally soon or is this.
I was just the can answer that in terms of clients and debt.
I'm not sure what the the question is ready, but I mean, I think were to a terrific position at the moment because.
Actual results of the.
But the very sort of dynamic liquidity bracing measures that we took in the first half of this year. We're in a in a very good company. You know we're in a very good position, we raised over $80 million of equity, we deferred 21 $21 million subscriber payments until.
2021, and beyond and we've obviously had.
Had we reached agreement with all lenders and so we're really looking at a position where we have a you know a very you know very strong liquidity position circling around $160 million.
We have limited payments of a bank debts and any other scrubber capex in the next.
12 to 18 months and obviously as I remember you said you know, we we have a wind turbine installation beslan.
Customer that has.
That's very telling that a payment terms. So we're really looking you know.
I'm feeling pretty comfortable about our financial position right now.
Sure.
Well that's it for me.
Your next question comes from your line of Ken Hoexter with Bank of America. Your line is now.
Hey, good morning, and good afternoon.
So I presume you to prepare for this on the wind turbine side, you've done some background research into the sector. Maybe you can give us some color on on the competitive space as you see it on the offshore wind energy sector and then.
You know further to that the idea of the useful life of of the vessel, you're you're you're buying thanks.
David do you want to speak to this.
Yes, Thank you and what I and I can thanks to the question.
Let me be Claire.
We have teachers back to the compasses in this space.
There's some of the Bastard audio engineering companies offshore companies in the world.
I don't fill out that you know as well as being competitors in a particular space a lot of these companies because the contract structure could well be our customers as well. So this is it's not a deficiency tool we fill in the of all our competitors I. Since you asked the question and I do appreciate the some.
Okay, that's cool, who really need to space.
We see that is the fact, we divide it into.
I mentioned.
The Benelux players to all come at the best regarded engineers and Ah Ah Foundation and construction companies in the world and have a substantial and well respected particularly in this space generally private companies.
And then very broad <unk>. The other players would come from more of an offshore pedigree generally Scandinavian pedigree.
As I said very very credits for companies, we feel we've got somebody to bring we feel it got something I had an effect because they simply been too.
ER, which I think we're steadily on this cool follows the me the public policy, but as importantly, more important SNI leverages, our competencies our clients and believe it looks like a the direction aren't best isn't anything and so that's probably the best way of summarizing all opposition intense competition I think you asked the second question kind.
My pleasure to be could repeat to not be grateful yeah. I know the second was just the life of the vessel.
Sure.
Look I think I'll, maybe have not having to comment but I just want to 10 husband since it's been very confident we bought it one of them more advanced principles that would be on the water that you deliver on installations.
We've worked very hard.
Understanding a customer's needs and how that's going to evolve over the next 510.
Yes.
On the installed base, obviously gross.
We think go get it ties Pos.
So would it best in class vessels have some pretty even engineering, a quality along with innovation I'm not in foggy too to our clients.
Kevin do you have something to add to that intend to Ken's question.
Oh I would just say I think you David I would just say look there's been a fair bit of study on the progression of wind turbine generators.
And fixed to the seabed and how long.
Large those generators can get before they hit different constraints.
Well, we know today is that there is a huge gap.
In installation capacity and infrastructure around the world plans to install.
Wind turbines of the say H, a 15 megawatt size.
And that there are number of manufacturing and logistical constraints that make further growth in this space.
Unlike fleet not impossible, but unlikely.
And so therefore, the size of our vessel and its capabilities as David saying, we expect to take us well into the next decade.
Okay. So there, but do you have it I guess just like in the shipping World is there a set light vehicle at 25 or you just it's unknown, yes, correct. It's the same it's 25 years.
Okay.
Maybe talk about you know management expertise in the sector. You know obviously, we know your expertise and on the dry side on on the product side.
Particularly your history.
And Robert history, with with both crude and product maybe.
It's just wrapping up or is it say, what we're going to take our shipping expertise and move into a new area, where we see the next generation of energy developing.
And it's you know shipping a shipping maybe just just give thoughts on that and then lastly, your view on returns on these vessels.
Thank you I can take the first part of your question you know in respectfully I think we covered this at some length earlier in the call.
If we look back on the history of the group.
And our associated activities.
We believe we've been able to respond to customers trends and desires and the demands for service delivery of our customers.
So even conventional shipping some might see it as a financial asset just fair enough, but bear in mind that customer requirements again back to my comments on HSC Q.
Our very very high and getting higher all the time.
So there has to be a confluence of different factors, which drive us into a new space. Many of those are financially.
Financially considered and say that's the preeminent consideration.
But there is a very close.
Relationship between that and being able and having the confidence to provide.
What customers are asking for.
And so here, we have us a financial opportunity.
Yes, let's call it a an operational or technical demand that we feel we have the pedigree.
To address.
Again, there will be certain competencies, we have to fill and we're in the midst of doing that assessment. She started some weeks ago, but the underlying attitude of being able to execute we feel we have that and again, we've been asked to get engaged in this by customers.
So we again, we feel confident that we're heading in a very very attractive direction and one that we can execute on.
And Ken just wanted to question on retired.
We don't want to this big feet. This.
But I think if you look at what we've given you want to school between the cost at the asset that bridge that we can apply to it.
A day rate on the Opex I think you can understand that the returns we believe that we can generate from this asset.
Oh substantial.
That's really because of the barriers to entry.
They're all here, which which we believe we have the key to enter this market and be successful.
But when you say belief that it generates great return threshold is and that's a key driver.
What about motivation in this announcement in the decision today.
[noise] thanks, guys.
Your last question comes from the line then no limits to fill your line is now.
Great. Thanks for fitting me in guys. Appreciate it I wanted to get back to maybe the question of not necessarily why salt, but in the past score music group has done a things on the private side answered it created special silos of assets.
And and I think for a lot of salt shareholders. The value proposition here is a recovery in the Drybulk business, whereas with the addition of that this vessel it sort of clouds that story, a little bit could you maybe talk through what why you didn't sort of keep things silo and maybe do.
[music] something on the private side.
Maybe eventually have it available as a public vehicle on its own right versus kind of deciding to to combine the two.
I think Ben Thank you for the question I think it's a it's a good question and thanks for allowing us to.
Talk about this.
In general.
We are very respectful of our shareholders and investors would very respectful of our sense.
And.
We know that Weve.
Change comes criticism.
However.
That's not a valid enough reason for us to just sit back and not act.
If we look at the way the stock is trading.
Clearly the buying interest into a dry cargo recovery.
Maybe I don't understand it but I don't manage to see it in in our stock.
And in many other dry cargo stocks as well by the way.
So.
One when you are.
Able to capture an opportunity.
You do your homework you make sure you prepare you make sure that you analyze things you know dispassionate manner, you make sure that you are respectful of yard shad older stakeholders and then.
Do you ever discussion and if the analysis and the discussion of the board level tells you that this is what is in the best interest of the company.
Which is what happened we'd Scorpio bulkers.
This is why we're talking about this today.
Okay.
ER and and then.
You touched on this a little bit earlier, but can maybe you walk through what are the Hello, I'm at the moment and I think in L. <unk> said and sometime early in the fourth quarter, you expect to convert it into firm order what are the hurdles or the steps that need to happen between now and then and.
And it in your mind is this pretty much Jay a done deal or is there some chance that it it doesn't actually materialize.
It is just some technical aspects of the specification of the vessel, which need to be finalized and for which nobody wants to rush and this is customer yet in this industry, both the builder and in this case and the buyer in this case our said.
Yes, we do not want to rush into things because.
This is not a conventional vessels that were building and the tender process. The Delaware customers, we use the vessels for the fair or may be fair.
Substantially between one and the other.
So in order to build the right optionality from a technical specifications standpoint, and not arrangements standpoint, it takes time and whilst we when we the wed recognize state of yards a proven design or we have to take the time in order to find the.
Lies the vessel to our specification and these stakes ill. It can take six to 10 weeks I would say.
Okay.
And then Golden lives when it because if you no no no no teams from quarter Yar out of traveling to Monaco are or what advice of various out to meet usually you know this happens in in the space, maybe or two to three weeks, but with the.
Maybe 567 10 days of a face to face meetings, which cannot cannot happen today.
Right.
And then lastly from me for I. Appreciate you said that the majority of any capital outlay would happen in 2022 closer to the end, but but is there any upfront down payment.
Leaves see whatever even 10% or down.
Upon the Finalization of the signing of the contract how should we think about sort of like a cash outlay in the near.
Shortly.
We don't disclose for for a matter of.
As a matter of Cartus you'd really we don't disclose.
Payment terms at this stage however, you know.
For example, the first installment is substantially less than what you had mentioned.
<unk> percent of stars.
It's helpful. I appreciate it.
Sure.
And if you have any other doubts or anything that comes to mind you know reach out we're happy to we're happy to talk to who likes what were doing an even more to potentially has a different viewpoints. You know it's always good then healthy for us to to compare notes. So please don't hesitate to reach out.
I'm showing no further questions at this time.
I would now that's kinda conference back to Robert.
Hi, Thank you would be I think look I think this these things ROI sort of difficult. It's it's a difficult with so many different moving parts to understand straight away.
But I think we're all going to see much more just over the next two three months I think it's you know from our side you know we as you know shareholders. So we just took yourselves as the you know owning the most stocking this it's an incredible opportunity a credible optionality well.
Right in this beginning to this dry cargo recovery and as a manual says you still able to benefit from that there's no requirement. It to raise equity you have tremendous optionality both in.
<unk> dollar Psalms, plus an optionality over time to you know to capture a spread between whatever you want to call. It the old world in the new World or you know.
Industry tied basically to net asset value to an industry that I don't know normal means started the sales are reviewed all so for us it's very exciting we hope.
Over the coming weeks coming months, the coming years. The you know what could be difficult for some to workout right. Now we'll start we'll be able to give you the data.
Two.
Bring you along in the future.
And Ah thanks, very much everybody.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation Napoli one that's something you may all disconnect.
[music].