Full Year 2020 Torm PLC Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to Thompson report twenty-twenty this time all participants at least another month after the speaker presentation. There will be a question-and-answer session to ask a question during that session. You will need to press start and one on your telephone. I will now like to hand the conference over your speaker today in Peterson, please go ahead.
Thank you for dialing in and welcome to Thomas conference call regarding this for fourth-quarter 2020. My name is Tiara Petersen and I'm the boss investor relations manager in term as usually refer to the slides as we speak. And then the end of the presentation we will open up for questions. Please transfer slight to before commencing. I would like to draw your attention to our Safe Harbor statement.
Please turn to slide three today. I have a safety director and CEO and CFO Kim Bennett and I will now handle the cold to you jacket.
Thank Stephen and please turn to slide for.
First and foremost, good afternoon. Thank you all for dialing. I'm truly happy to be here today as we have published a strong result here for twenty twenty and not least because we met this morning and also announced acquisition of eight from Team tankers in a partnership a transaction which we view as attractive.
Twenty-twenty has in deep in a special year also for the product tankers impacted by the global pandemic and the related close calls the parents. Anchor Mark can for this should be divided into a brilliant first half and not so flattering second half consequently. The year ended at loss-making Freight rate levels here in the fourth quarter isolated the parts and complete faith is an average rate of $12,853 per day and for the full year twenty-twenty. The number was $19,800 per day than a quarter. We realized an adjusted net profit of -24 million dollar versus a profit of twenty seven million dollars for the fourth quarter in 2019. However, you may already mentioned strong first half of the year. We realized and adjusted net profit or hundred twenty two million dollar for the full year twenty-twenty versus fifty 1 million dollars in 2019 dead.
I want return on invested capital budget for non-recurring items was 9.3% and we have over the years distributed a total of $71 in addition to our shareholders in parallel with us having the continued focus on Commercial and also Financial optimization. Tom has over the past years had a contingent focus on our responsibility in terms of the environment our social engagement and our corporate governance combined known as the team we have as with our stakeholders experienced and increased focus on your C or appeared and to accommodate this we have decided to publish a separate you see report for 2020 this reporter selected Matrix, which we believe are relevant for our business in connection with the publication with lab to announce the future reduction Target for us 40% by month.
Compared to a 2008 Baseline here by the end of 2020. We have achieved a 22% reduction through our continued focus on life savings.
During the fourth quarter. We also sold one older Mr. Vessel required to mm deep. Well Mrs. For total consideration of thirty two point six million dollars off of the vessels was delivered to us during the fourth quarter and the second one was delivered here in the beginning of 2021.
Hey.
And then finally, I think already mentioned we are pleased to have announced further expansion of our Fleet with the acquisition of eight Mr. Vessels from Team tankers and here on the next slide. I'll elaborate on this specific acquisition. So please turn to slide v as mentioned. We announced today that we purchased these eight $2,000 to 2012's has a total cash consideration of $83 and will issue just around six million shares.
With the share price as of 26th February the total net contribution amount to $132 which can be compared with the broke evaluation of the fleet of a 148 million dollars. So as far as the transaction is assessed as attractive to talk.
To finance this acquisition. We have obtained a commitment of up to ninety four million dollars from our existing lenders on what we deem as attractive terms as the search the transaction page will enlarge be cash neutral to Tom.
Six of the message we're taking over have specialized cargo tank configurations and extended tank segregations that allow for enhanced trading flexibility through chemical trading off the business will still be operating within our existing one tone integrated platform and increase scale with lower our admin costs by about $575 per unit day there by creating annual synergies of around five million dollars. Also, what we try to illustrate is that this transaction will increase our operational leverage Insurance create a potential to leverage a potential Market increase now, let me turn to some of the drivers in the products Lincoln MKT specifically
And here please turn to slide six.
COVID-19 has really sent the product anger Margaret on this rollercoaster ride. I mentioned before Benchmark Freight rate reaching the all-time highs in the second quarter of last year. And now as wage it's come down to the levels below the $10,000 per day Mark. Obviously, there are a number of different drivers behind the development but a large part of this can be explained by movements in the products. Pulse and hear please turn to slide seven.
So we can really talk about two faces in stock development the first page which this the Stock Building phase started with the unprecedented shock to the global oil demand as a result of COVID-19 at the same time as Refinery runs with slow to react to declines in demand this led to unprecedented inventory bills, which benefited the parts and can Market in the same quarter of last year in the form of flooring storage and also trading in efficiencies.
the second phase the structural
Started along with the rebalancing of the oil Market as Lockdown measures will relaxed in many parts of the world and the oil demand rebounded from the lows reach back in April as we may remain very weak. We finally did not ramble ramble up as fast and we moved into a stock prophase this meant unwinding of floating storage, which was the last number of ss into the market and reduce the demand for transportation.
And this is a place where we are right now further aggravated by renewed lockdown measures in many parts of the world due to a second wave of COVID-19 cases and the emergence of new more transmissible variants of the virus. This has resulted in a temporary reversal reversal in oil demand recovery and strengthened the short-term headsman's I think of Market on top of that a week crew Tanga Market is adding the pressure in the form of you know, to clean ups and crude cannibalization the combined effect of which is reflected in the Keurig little Freight rate environment.
Cantone we primarily employ our bases in the stock market however in light of the anticipated Market developments which shows to increase our car very significantly off and for our Fleet of nineteen alarm vessels, which traditionally are the ones most affected in the week accrued rate environment. We have covered 84% of our days in the first half of 21.4 feet of 52 ml vs. We have today covered 63% of our exposure in the first half of the year. So the obvious question is well, then expect to see the market to it. It's truly difficult to estimate the exact timing but the inflection point is in our opinion to be reached once the country's reopen the demand recovery gains momentum and products tax return for more normal levels.
slight eighties
that's what were you mentioned renewed lockdowns have negatively affected the oil demand recovery in recent months. Especially Europe has been hit hard where we've seen the automatic lining compared to the levels seen at the end of twenty-twenty nevertheless. We remain confident that with the acceleration of the vaccine roll out the dog gets on the control and the affected countries reopen this will lead to wider recovery in the macro economic activity and an underlying all demand and indeed if we look at countries, which have not experienced a similar large-scale re-emergence of infections, like China like India, these countries have seen Adam and compact to Creek organized, you know, almost three COVID-19 levels in recent months.
It is most likely that there will be a difference.
In how fast regions will progress with vaccinations and many developing countries might lack behind here, but I think that we can presume that Europe North America South. Asia will reach some kind of food Community by, so on.
And if we combine these regions together with China with India, this covers as much as two-thirds of the global ultimate.
pizza and just like 9
I thought I mentioned earlier we are in the stock growing phase which is normally associated with headwinds to the Ten Commandments.
Well, if you look at the latest florastor, it's an onshore inventory data. We can see that floating store is is almost back to what we consider a normal level and aren't your product inventory at mainstream well below the Peaks which over the summer although not completely back to the prequel we close.
From a shipping perspective. This case is further strengthened by inventory likely being in the right places a good example here is high diesel inventory in the US Gulf and asia-pac likely to be exported to other regions at a later point in time. This suggests that much of the stock growing is actually finalized meaning less headwinds. Once the main page really gains momentum.
Now please turn to slide ten.
If we turn to more medium and long-term Market drivers, the COVID-19 demek has accelerated the pace of Refinery closures with around two million barrels per day of refining capacity having closed down and another 1 million per day.
A potentially at risk of closure.
Most of this capacity is located in regions which already a large Imports of refined all products such as Europe with West Coast Us East Coast, Australia New Zealand home. Also South Africa at the same time approximately five million barrels per day of new capacity is scheduled to come online mainly in the Middle East and China the regions that or do they a lot exporters offer all for us?
Both of these developments are positive for trade flows and Fatone Mile in the post COVID-19 world.
The only a few projects which are less positive for trade most notably the large-scale than code refinery in Nigeria.
To illustrate the significance of the mentioned Refinery closures refineries at risk account for 5% of the total refining capacity in the world's largest diesel wage in Europe 12% of the US West Coast and 28% of the US East Coast capacity.
And now I can't ask you to go to slide 11.
For Australia and New Zealand, the figures are even more significant two out of four refineries in Australia are closing down and the sole remaining Refinery and you see life. It's most likely to be closed down as well. If we take just these three refineries in Australia New Zealand a closure of these could potentially mean the need for at least thirty five a.m. All the way up to 55 additional last year to replace lost local Supply by Imports. Once they all demand in these countries recover to the pre COVID-19 levels off.
Some of these demand would like it also benefits Alas and the recent import would be triggered by both traditional and new supplies in Asia, but increasingly also from us in the Middle East, please turn to slide 11.
This positive outlook for the demand for product tankers in the next three to five years coincides with the supply side, which is the most supportive for twenty-five years.
You order book to feed Rachel Tang is currently at a historically low level and only covers 7% of the total feet. This has been further supported by the relatively low interest for new bulb ordering in 2020. As a result of the uncertainty is due to COVID-19 as well as the future propulsion systems of the vessels. Although we recently did increasing interest in a single statement as a consequence. We expect the feet in the next two to three years to grow on average between 2% and 3% a year half the pace of growth seen over the past month.
To conclude our remarks on the parts and come home expect to see volatility in the market in the short-term related to the COVID-19 and its impact on the global oil markets and economic activity.
That's right from the COVID-19 effects. We see that a number of key Market drivers for the next three to five years will remain positive such as the refinery dislocation the New Order book off which would provide support to product tankers over the longer term.
Following the market dynamics, I believe Tom is well-positioned to pull maneuver utilize potential opportunities in the current low Market environment through our strong capital structure. That's the market will return I further believe we are well-positioned to utilize any Market strength through our operational leverage and integrated platform.
Pizza 2/13 looking specifically at Tom's commercial performance. I'm pleased that we again in the fourth quarter of 2020 and the larger segment may have outperformed the peer group average in the third quarter of 2020. We achieved rate of $11,243 per day compared to the average of $9,699 per day this translates into a different learning of nine million dollar in the fourth quarter Loom and 45 million dollars for twenty twenty in general. I am very satisfied with that term operational platform continue to deliver very competitive tcu's
and now
Absolute she was like fourteen.
A key deciding factor for delivering. The above-average earnings is driven by our continued focus on positioning our vessels in the patience with the highest earning potential in the fourth quarter. We had a slight wait east of sugar in line with the General market and here are now hand it over to my colleague Kim for further elaboration of our operational leverage the cost structure home. Of course, the balance sheet came. Thank you Jacob. Please turn to slide fifteen significant leverage to increase the underlying problem. It's all ready by the end of the 20. We are taking a relatively large covered for the first half of 2021 and protection for the current week Marcus. We are significantly more exposed to krack Stronger Market towards the end of the year to illustrate this as a 31st December 2020 at $1,000 increase in the spot rates for the first quarter of 2021 would translate into an increase in
Profit before tax of around three point five million dollars and in the fourth quarter of Twenty-One, the corresponding number number was six million dollars. And as you mentioned the acquisition of the 8,000 ask further operational leverage, please turn to slide 60.
For the acquisition of the 8mm our business from Teen chiangus. We have we had about 27,000 running days annually with the additional vessels. Our earning capacity will increase too close to age thirty thousand deaths annually and during q1 20-21. We have further de-risk our earnings downside in the current week Market by lifting the courage to 85% of burning days for June Twenty One by 23rd February at a weighted average level just below $13,000 per day.
Please turn to slide Seventeen to balance. Our original key fobs for Tom is to maintain a solid capital structure The conservative-liberal Leverage off combined with our strong operational performance that has generated a solid Cashflow. This conservatism has enabled us to execute on our own going frequent program while at the same time returning a significant portion to shareholders in form of dividends in 2020. This was Illustrated through top returning sixty-three million dollars from our earnings during the first six months of the year song We believe that this approach supports a long-term vendor generation for so long and has enabled us to take advantage of attractive opportunities in the market as they arise such as it just announced participate in my business.
Please turn to slide eighteen. I would now like to review a financial position in terms of key metrics such as net asset value and loan-to-value in a little more details off. This values have decreased by around 3% during the fourth quarter of 2020 and the value of Tom's business including new buildings was just around 1.6 billion dollars off of 31st December 2020 outstanding Crush depth amounted to 846 million dollars as of 31st December 2020. And finally we had a standing committee of going on 1 million dollars related to our new building program and cash of $136 as of 31st December 2020.
This gives Thompson.
Talk and it loan to value of 51% at the end of the fourth quarter, which we consider conservative level. The net asset value is estimated at $800 million dollars as the 31st December 2020 and this corresponds to ten point eight dollars or 65.7 Danish kroner per share and just before commencing this call Tom shares were trading just below for $49.49 Corolla.
He showed we have a balance sheet which provide us with strategic and financial flexibility. And on the following slides. I will give some more insights into a liquidity position cables commitments and out that profile. So please turn 2019 31st December 2020 Tom had available liquidity of $280 cash total 136 million dollars and we had on Thursday twenty facilities of $132 million dollars including the financing ladies who are recently purchased $2,000 in my business that we have already drawn on in 20 21, Charlie quality wage $95 million dollars.
The children capex commitment relating to our new buildings were eighty six million dollars as of 30 December 2020 in addition to the capex related to our new business. We also expect to pay twenty million dollars for gas stations on visits on water and for the last two thousand simple demolition 2nd 2010 built in my vision has been delivered in the first quarter of 2021 and fine. As long as I mentioned we are not included the team tanker transaction in the overview, but you can enlarge assume that the transaction is Cash neutral.
But some strong liquidity profile the capex commitments are fully funded funded and very manageable while the liquidity position at the same time provides room for purchasing New Opportunities may arise please turn to slide twenty.
After him finalize the refinancing in the beginning of 2020. We have eliminated all major refinancing until 2026 which provides Tom with financial and strategic flexibility to pursue valuable opportunities in the market. It's displayed. We do not have any major repayments until after twenty twenty-five which remains when checking the Innovations purchase into account off.
And with that I will leave the operator or more questions.
The gentleman will now begin the question-and-answer session. If you wish to ask a question, please press star one on your phone.
We're first question from the line of jumps from either car.
Thank you. Good afternoon, everybody.
Monjon, two questions today. Let me start with Kim on the on the topic that you were just discussing. So with the liquidity the capex commitments even this new life in an ounce this morning and your dad have a reservation schedule. It does seem like you still have spread liquidity to be opportunistic, but given the, you know, maybe the the tale of two halves for the for the market this year in the depths of the downturn today. I'm just wondering how you think about your actual Firepower today, whether it would be to acquire additional ships or stock or cetera. You know, what do you think the true spending power of the company is today when we're still bouncing along the bottom of the market and then maybe in twelve months time, assuming, you know Jacobs presentation on on the marketplace. And we're in a much stronger underlying Market. How do you think about the leverage to to continue invest at this part of the cycle?
Thank you Jonathan. That's a very good question. First of all, I I think the the transaction today demonstrates that we are in the market as we've also talked about all 2020. So when the opportunities are there, we also there and we are quite heavy that is a partly share-based transaction. I also mentioned it is June Cash neutral and such. So while having a an average of around 50% and with the markets, we are looking into we're still there. We still have the conservative capital structure. Of course, we constantly evaluate and test and we have a policy on on our capital structure measures wage. So we actually find that should anything arise we are still in the market for for opportunities, and that's also cause set and demonstrated with the presentation with the coverage and the increased birth.
What all you can say d coverage by the end of the year, we have firm believer in that the market will at the post COVID-19 or after we have seen the rollout of the month. We looking into much brighter markets, so it should be definitely still there.
So I think you should instead of putting a number on how much it's more I would be guided by right that makes sense a my second one Jacob for you. Maybe a little bit of a multi parter, but just trying to tie everything together. So another acquisition of vessels that were built between 7 and 12 to 2 a.m. Ours from the last call for 2010. I understand that's probably the sweet spot from a return perspective just given the age of those vessels The Limited debt associated with those if we return perspective it probably looks much better than a new building or a you know, or even a prompt shipped today. However, you rolled out the ESG report today. And as you start to think about the next stages of decarbonization, you know for everything that weird understand you would obviously do a lot better, you know, maybe the older ships are less efficient when it comes to that. So can you just help us tie together, you know balancing Returns on Capital birth.
Was thinking about the next stage of evolution.
In the company when you're investing in assets across a different age Spectrum.
Yeah, excellent. Excellent. Thanks for that and obviously in management and with a port this is exactly the balancing act that we are constantly discussing. So I think it's clear at least in our calculations the currently if you were to to clear a a deal sort of The Sweet Spot whether it's you know Ten Years or or just around that's probably that's probably the age group where on paper if you get most value for your buck and that's returning Capital as you point to in our opinion with the current pricing makes most sense. Then I think we we see it as two things in terms of then these vessels suitability to the platform one is how does it fit with our customer needs? So these assets for a longer period actually be something that is Meaningful.
On the platform on there at least up until now we've seen the weekend sweater our assets. I would say up to somewhere between Seventeen to twenty years and we get a supervisor to return from that that may obviously changed over time. But that's at least how we see that that seems to be a model that that is working. Well for us last year, we sold eight vessels. The average age of of those eight were actually by coincidence just 17 and a half. So I think that's that's kind of we're still playing that up that we need to live up to the quality and safety needs of clients and provide the right tools for the job. And we need to combine that the first and foremost with economic return to our he'll listen to our illness. Now the last piece in the puzzle is this about efficiency? Yes clearly some wage.
Can see derived from the simple fact of Technology on ships becoming better or what time so let's say as a built in two thousand versus one back in 2022 that certain technological advances, but in in in for our case, we see it as if we can make actually a meaningful Difference by having our platform where we've already lower 22% of a few consumption from what is the Benchmark in 2020. We have further Target to lower it to 20 to 40% on a relative basis and that is not something specific that is something that you can do on all this is another example of that is actually like there's two that I can tie this too is that on ESG that we are committed to constantly driving job?
If you to let me see.
Irrespective of age which is also part of our funding where we have sort of a mechanism, whereby living up to these criteria around still further decreasing on our faith with our bank group. We will get a lower. Margin whereas we will be penalized and we're ready to take sort of this Arbitrage between getting to the right place with our existing assets. I'm doing the right thing lowering if you to footprint and gaining it an economic Advantage versus of course that when we are not capable of living up to those targets that we would be lost. So all-in-all I think for us this ties well together and strategically I'm comfortable with this over the over the coming years and of course we need to adjust off but I don't see these vessels as being obsolete in any way in the coming years for our trading platform.
Got it. Hope that was a long answer to a simple to to a simple question. But I hope I hope it put some granularity on. I don't know the question was that simple that was a thorough answer the important question. Thank you. Thanks. Thank you for your question. We have another question from home.
Hello, I'm Sandra and I just wonder about the acquisition. Why are you partly paying with shares give you stock is trading Below in class italic. I mean have 25% discount or something like that student-athletes value.
Can you not breath a little bit on that voice? That's not plugged asleep.
Yeah, thanks for that. Well, we actually issue a specific number of shares and if you if you go back to our announcement, it's about six million jobs and they are not issued, you know at the going price in the market. If you turn to slide five, you'll see that the net contribution with may see a price is 132 million. If you take the value of the obviously cash is Cash on cash and then you take the new Tom shares issued. Then it comes to a hundred and thirty two versus evaluation of 148. So we have this discount in the issues embedded in the number of shares Thursday. We have negotiated.
Okay. Thanks.
Thank you. We have a next question from back from c a p please go ahead. Yes. Hello. Jacob clemmensen, thank you for taking my question. Now that the bunker spread has increased between high and low sulfur has that impacted your view on scrubber Investments. I know you have a large share of your your Fleet wage pass scrubber invest installed already, but with the widening of the spread has that changed your view and also if you can touch upon the dog between your scrub updated and non scrubber. Nestled at the moment.
Thanks a lot for that question.
So taking it a step back. Then we have looked upon the scrubber program we have where we made at all investment of about a hundred million dollar. We may look upon that as being a strategic moves. That was something that we actually decided on a couple of years ago that it would be the right thing for us to balance this strategy and we've come up to 50 basis in a feet while we do have a scrubber and then as you point too, I think since the introduction of Scrapper and high so for the Samsung offer in the early part of two thousand we've seen the first a high spread more than $200 close to $300 in the beginning phase then off last year. It came down to 50 to $70 depending on the geographical location of the world. And now again, we are back above a hundred and and it seems to be attended dead.
To arising but we really not make the decisions around this based upon the daily spot spread. We made a strategic Choice currently. We have very pleased with this investment program and I don't have any particular plans for you to to reopen that at this time that may of course change if off and when we sold that the news spreads would go further up we have by virtue of having our own production. We have a short lead time to getting sick for the scrubber program and for the installation, but there is no plan for that right now. And on your point about earning. Well, then I think it's clear that way if on lock your vessels, I think the daily spread is let's say around $3,000 currently between scrubber and non scrubber and it's somewhere between 1500 and 2000 Thursday.
small segment in the mass
Okay, thank you. That's very clear. And then my second question is about scrapping which has been very low compared to the historical average this year so far and Thursday and that's despite having a low-rate environment fairly High scrap prices and also an aging Fleet. So what what is your view regarding the Scrabble scrapping tendency and what might be the trigger point for owners to increase the scrapping.
Yeah, so so we have a communicating throughout that we see the current average grabbing age, which is somewhere 2455 for this type of service. That we do not see that that would materially change even in a down market. So we are still with the modeling we have is that when you talk about scrapping that our models scrapped the vessels on average when they're around twenty-four twenty-five and we have not lowered wage which is grabbing age. Which would of course in certain takeaway capacity from the market. But from our experience. What happens is that when you guys are taking out of how can you say the global trading get at the age of let's say around twenty then these verses are utilized in different stages.
More storage or it's very local.
Eight vessels so they only disappear from our list once they are at around the age of 24/25.
So we're not taking a sort of a hockey stick on this which would of course be beneficial to the market, but we are not of the opinion that that is a realistic scenario.
Okay, let me clear. Thank you know for the question for me.
Thank you for your question. I would like to remind you to the participant if they want to ask a question that press start one on the telephone key off.
There are no further question at the moment.
We have one one question from the web regarding our coverage of Jews and them are in the second quarter as well in the first quarter, which place are you fixed in the same courses in the answer the question we can definitely touch upon that so as I already alluded to which we took a month it's received decision to come into the year with significantly higher cover than what is usual for our platform. And for the Thursday. We have a a cover a high cover for us in Q2, which is a trait levels that are above what we have declared today for. Do you want to know announcement in the segment we have less cover. But again the cover we have is above the q1 quoted level wage.
We that we came up with today.
Thank you very much. And there's no further question. So this ends today's call and thank you all for participating and we're looking forward to to see you again or hear tell you about the q1 later this year for today. Thank you for participating. You may hold disconnect.