Cmb.Tech NV Q2 FY2025 Earnings Call

Good afternoon, and welcome to the Cmb.Tech Earnings Release for the Second Quarter of this year. My name is Alexander Saverys, and I'm joined by my colleagues, Ludovic, Joris, and Enya. We'd like to discuss the Cmb.Tech and Golden Ocean merger first to start. That is the news of last week. Then we will zoom in on the second quarter financials and highlights, conclude, and have time for some questions and answers. Let me first start with the news of last week. On the 20th of August, we completed the Cmb.Tech and Golden Ocean merger to create a leading diversified maritime group. For those of you who have followed us before, you will recognize this slide, but I do want to take you through the combined Golden Ocean - Cmb.Tech fleet. We have today 206 modern eco vessels on the water with another 44 on order. Of our 250 ships, about one-third will be powered or will be capable to be powered by ammonia and hydrogen. Our contract backlog stands at close to $3 billion, and the average age of our fleet is a tick under 6 years. The total fair market value of the fleet is close to $11 billion, and we have $1.9 billion of CapEx commitments still outstanding. We are listed on the New York Stock Exchange, Euronext Brussels, and since last week as well on the Oslo Bors. You can see the detailed breakdown of our fleet at the bottom of the slide with the major change being that Bocimar now has incorporated the fleet of Golden Ocean. We have added 89 vessels to the fleet; our dry bulk division now has 119 ships. After the merger with Golden Ocean, we are the largest listed diversified maritime group. You can see the comparison to some of our peers, the pure-play peers and the more diversified peers. We have a market cap of over $2 billion. Our free float is now a significant 38%. Recently, we have had a turnover of 3.5 million in shares as the average daily turnover. Looking at our fleet and how it will evolve in the next quarters, we are adding new buildings nearly every month, every week. You can see that today, our fleet stands at 206 ships. By the end of the fourth quarter of 2025, we will be at 218 vessels, and we will add another 23 ships next year. So our fleet is growing rapidly. Translated to available days, this is also an updated sheet after the integration of Golden Ocean into Cmb.Tech. You can see that we have about 54,000 days in 2025 and going to 60,000 days next year. And you can also see the detailed breakdown between the different segments. The dry bulk division Bocimar has become our largest division, and what we are showing on this slide is the split between our spot days and time charter days. You can see that in our divisions, containers and chemical tankers, we are very well covered on the time charter side. In dry bulk and tankers, crude oil tankers, we are very much spot-oriented. The reason we're doing that has to do with many factors, but primarily based on our view on how we see the market in the next 12 to 24 months. On the right side of this slide, you can see the order book-to-fleet ratio in segments like dry bulk and tankers; where we see a low order book-to-fleet ratio, we're expecting better rates. We are more spot-oriented in segments where we believe there might be some oversupply in the months and years to come; we have taken more coverage on the time charter side. I would like to hand over to our CFO, Ludovic, to talk a little bit about the financials, starting with the free cash flow of Cmb.Tech.

Yes. Thanks, Alex. This slide is trying to show in connection with the operational strategy of being open on dry bulk and tankers, what the hypothetical one-year free cash flow could be operationally. This is excluding the remaining CapEx to be paid and excluding the cash received from vessel sales. On the bottom right, we've made some assumptions. This is by no means pure science but we have presented three cases where you can see that throughout the various segments, we would generate, in a bear case, a loss of $35 million cash; in a medium case, $170 million cash; and on the upside, $380 million. Just to highlight, the bull case, the high case we're showing here, is actually reflective of the current market. So if the market would continue in the current state with our spot exposure, we would add roughly $380 million of free cash in the next 12 months. Continuing with an update of the contract backlog, we have stayed at roughly $2.9 billion compared to last quarter. This is attributed to the additional long-term charters we have received from Golden Ocean, primarily on Kamsarmaxes and six Capesizes that they originally had in their fleet. Moving to the financials of Q2, we've ended the quarter of this year with a loss of $7.5 million, which is $7.7 million profit for the old Cmb.Tech and a $50 million loss on the Golden Ocean exposure. The liquidity stands at roughly $400 million as of today, and I have discussed the contract backlog already, as well as the outstanding CapEx of $1.86 billion. That amount is from August forward till the end, from which $1.6 billion we have already committed financing and $270 million is unfunded. So when people ask about this large order book, how much we will need to use from operational cash flow or vessel sales, the answer is $270 million, broken down as $30 million remaining in this year of unfunded equity, $170 million for next year, and then $70 million in 2027, '28, and '29. If we focus a little bit more on the Q2 figures, we show that our figures have indicated a higher revenue, higher OpEx, higher G&A, and also higher depreciation. This is simply due to merging the two companies. On the right side, we indicate that the figures have been impacted by some one-offs, including $22 million on unrealized foreign exchange losses and interest rate swaps. We've had a loss on the sale of the Golden Zhoushan. Also, when we merge, there are costs associated with audits, legal fees, and financial advisory fees that have reduced the P&L in the second quarter. We have mentioned the loss of $7.6 million and EBITDA of $224 million. We've completed the merger, as Alex mentioned, and the Board has decided to issue a dividend for the Q2 figures of $0.05, which will be payable as soon as practically possible beginning in October. As discussed, we have a contract backlog, and have secured a new $2 billion facility, of which $1.25 billion has been utilized to refinance the entire fleet of Golden Ocean, and we have $750 million of undrawn revolvers that can be utilized for repaying some of the other debt. We are presently listed on three exchanges, which we take great pride in, now also being a member of the Oslo Stock Exchange. Our newbuilding deliveries have continued notably; we have five Newcastlemaxes, one CSOV, and two CTVs scheduled for delivery. Additionally, we have sold the VLCC Iris, and the Hakata & Hakone have been delivered to their new owners, and I'm happy to report that we have recently sold the Sofia, where we will log a capital gain of $20.4 million in the last quarter of this year. Lastly, the Gold Ocean team has delivered two Kamsarmaxes and one Capesize to their new owners in the last quarter and the upcoming quarter. This is once again a preliminary view of the P&L breakeven set across divisions and what we have fixed in the current quarter, but Alex will elaborate on those figures later.

Thank you very much. I will now zoom in on our Marine division, segment by segment, to talk about a market update and what has happened in our various divisions. Starting with Euronav on the crude oil front. The picture you see here is our very first VLCC being built at Qingdao Beihai shipyards in China. We will take delivery of the vessel in November of this year. Starting with highlights, some of which have already been mentioned, just reminding you that we have ten VLCCs and eighteen Suezmaxes on the water today. We have another five VLCCs on order and two Suezmaxes. The results time charter equivalent for the second quarter for VLCCs sat at $45,000. As of Q3 quarter-to-date, we are at $32,000. For the Suezmaxes, the results also sat at $40,000 for Q2 and similarly $40,000 for Q3 to date. Ludovic just mentioned that we have sold four vessels. The Iris, Hakata & Hakone have been delivered to the new owners, and the Sofia will deliver in the fourth quarter of this year. You can see our OpEx P&L breakevens on the right side of this slide. We also like to highlight some important indicators for the market. On the right side of the slide, you can see that there are some positive indicators on the demand side, such as world oil demand, which is growing slightly, and supply from OPEC and non-OPEC countries; OECD crude oil stocks and then definitely the tanker fleets, which in the short term will only grow by a very small amount. There are some negatives regarding U.S. crude oil exports, China oil imports, and the global crude oil floating storage, which are all down. Looking at the midterm tanker markets, I'd like to discuss the supply of oil and the supply of ships. Starting on this slide with the supply of oil, you've all been following the OPEC+ cuts since 2022. They initiated by cutting 2 million barrels per day, then 1.6 million barrels per day, and the last one was 2.2 million barrels per day. In recent months, this has turned around, and we expect that by October, this voluntary second cut of 2.2 million barrels will be entirely reversed. If that happens as planned, and we are seeing some signs already of increased volumes, this will obviously be positive for the tanker markets; more oil coming out and more oil on VLCCs should support our markets. Moving forward to the next couple of years, if we take the IEA forecast, you will see that the gap between supply and demand will favor supply. More oil means more storage, and more oil should also translate into lower prices, which could be very supportive for our tanker markets. On the vessel side, the supply of ships is becoming a bit of a mixed story. For the last two to three years, there were very few newbuilding orders for crude oil tankers and the order book was very low; however, we have seen an uptick in the order book over the last 6 months, as well as a little bit in the previous year. The Suezmax order book to fleet now stands at 19%, while the VLCC order book to fleet stands at 14%. In the short term, we still see that there are very few ships coming to the market, but from the second half of next year, we expect a pickup and more vessels to enter the market. This does contrast a bit with a more fundamental analysis of the age of the fleet and the potential for scrapping and recycling. By 2030, 40% of VLCCs and 40% of existing Suezmaxes will be older than twenty years. This presents a significant opportunity for scrapping and recycling vessels. It will be interesting to see in the next couple of months how the slightly increased order book will align with potential recycling and whether that will balance out. Of course, we need to talk about dry bulk as well. Bocimar, our dry bulk division, has become our largest division. The picture you see on this slide is not a picture of the ship but the very first ammonia engine that will be installed on one of our Newcastlemaxes beginning next year. In Bocimar, we have split our performance for this quarter between Cmb.Tech and Golden Ocean because it was, of course, a transition quarter. On the Cmb.Tech side, we have 17 Super-Eco Newcastlemaxes on the water, with another 11 that need to deliver. We achieved a time charter equivalent through our fleet of $23,000 net and Q3 to date stands at $8,000 net. On the Golden Ocean side, we're discussing 89 vessels on the water, consisting of 18 Newcastlemaxes, 41 Capes, and the rest being Kamsarmaxes and Panamaxes. We achieved in the second quarter for the Newcastlemaxes $18,500 a day; currently, Q3 sits at $23,500. For the Kamsarmaxes and Panamaxes, the figures are $10,500 and $13,500, respectively. Golden Ocean sold three vessels recently; the Golden Keen and Golden Lonari were delivered to their new owners, and the Golden Zhoushan will deliver in Q4. Moving on to indicators on dry bulk, on the right side of the slide, we see a lot of positive indicators. On the demand side, we’re looking at good China steel mill utilization, which has increased significantly, and inventories have decreased tremendously, typically a positive sign for extra demand. Iron ore inventories are also down. However, on the other hand, iron ore imports are beginning to increase, along with Brazilian and Australian exports. The only negative aspect specifically for China is that the coal imports are down by 8%. In terms of fleet supply, we are anticipating an increase of about 2% to 3%. Moving on to the long-term dry bulk market attractiveness, you can see on the supply side that we are currently well below historical averages in terms of deliveries, both today and in the following years. The average age of the fleet is close to 12 years, and the order book sits at a low 9.4%. We can see that there are already 113 Capes that are older than 20 years, with another 500 projected to turn 20 years in five years from now, compared to 150 Capes currently on order. This paints a very supportive market outlook. Additionally, some other factors supporting the supply story include approximately 500 Capes needing to dry dock in '25, '26, and '27; that equates to about 2% of capacity being taken out of the market during these years. Moreover, ongoing environmental legislation is becoming increasingly stringent, which will certainly impact Capesize and Newcastlemax speeds and availability. Looking at the demand side, we are witnessing a decrease in domestic production of iron ore within China, resulting in increased imports of iron ore. In addition, supply of iron ore is set to increase in areas such as Australia, Brazil, and of course, Guinea; we discussed this in prior calls, and it reflects a positive sentiment for global iron ore mining activity. Adding to the demand side, we have the bauxite story, and I have a slide on that in a moment, as well as positive growth numbers for grain. Here, you see a slide on Brazilian iron ore trade. We wanted to highlight the seasonality and impact of bad weather on iron ore exports from the Atlantic, but now that the bad weather should be behind us, we anticipate an uptick in iron ore volumes from Brazil. Even during the bad weather, we observed volumes at five-year highs, which should certainly support our markets. The same can be said for Pacific iron ore; we've presented more data on specific producers like BHP and FMG. Analyzing their production and targets for the year, we believe this trend will continue to support the market and has already helped raise rates in recent months. In Guinea, we look forward to enhancing our bauxite trade, which is crucial for both the Capesize and Newcastlemax market; we anticipate iron ore volumes from Simandou to begin ramping up by the end of this year and definitely into next year, which will also be beneficial. And this increases the ton-mile perspectives considerably, making it supportive for the Capesize story. On coal and grain, the scenario is less favorable for coal but more positive for grain; we see coal stock inventories in China at five-year record highs. The Chinese are producing more coal domestically and have received increased supplies from Mongolia, resulting in fewer coal imports entering China. Conversely, globally, the coal story appears somewhat more positive, but overall, maritime coal trade this year is anticipated to contract. In terms of grain trades, positive numbers are coming in, which may not directly impact our Capesize and Newcastlemaxes, but could have an indirect effect on the Kamsarmax and Panamax markets contributing positively to our fleet from Golden Ocean. Moving on to the Container division, there isn't much news to report about the performance of Delphis; our fleet is fully fixed, and we're waiting for the delivery of one more newbuilding next year in July. However, we have observed a clear softening trend in the spot freight rates, although the time charter market remains well supported. Our reservations regarding the container market stem from the high order book, but that doesn't preclude us from considering potential projects that meet customer demand, especially in certain feeder sizes. On the chemical tanker side, we have a fleet of six vessels currently on the water, with another two chemical tankers expected to deliver in the coming weeks and months. We will be receiving two bitumen tankers in 2026 and ammonia-ready and ammonia-fitted chemical tankers scheduled for 2028 and 2029, respectively, with our long-term time charters. Most of our chemical tankers are secured on long-term contracts, with only two vessels operating on the spot market through the pool. Our results in the pool for the second quarter were very satisfactory, yielding $22,000, and for the third quarter, rates have been gradually increasing, with expectations for Q3 to come in higher than that number. A critical element regarding the chemical tanker markets will be the performance of MRs and how the MR and chemical tanker markets interact. Ending with our offshore wind division and Windcat, you see a beautiful image of our Windcat Rotterdam. For some of you who joined us yesterday in Singapore, we have officially introduced the Windcat Rotterdam to the broader public. This is our very first CSOV on the water, with another five CSOVs on order. In terms of Windcat activities, we have 56 CTVs currently on the water, with another 7 on order. We have already delivered one CSOV and have five more scheduled for delivery. The market in offshore wind, oil, and gas appears healthy; we haven't observed the typical decline towards the end of summer, as the market remains robust. Our utilizations have been very positive. The numbers that we've achieved on both time charters and our breakeven rates are encouraging. There’s significant interest in our CSOVs both from offshore wind projects and oil and gas projects that require modern vessels to support their operations, and we anticipate these trends to continue in the upcoming months. This is a summary of our outlook; we are positive on tankers and dry bulk, which is also where our largest spot exposure lies. We are cautious about the container and chemicals market, but that does not mean we will not explore new projects; we will ensure that these projects are secured with long-term charters. We remain optimistic about offshore wind, with significant capacity being built and healthy demand in that market. In conclusion, we discussed our results, highlighting our blended loss of $7.6 million in the second quarter, which includes the performance of both Cmb.Tech and Golden Ocean. Importantly, we successfully completed the Golden Ocean merger last week, we are pleased with our three listings, and we are excited about our next steps. We've declared an interim dividend of $0.05, and our portfolio is strong, supported by our contract backlog, modern fleet, and most importantly, our decarbonization options provide additional upside potential for our earnings. Looking ahead, we maintain a positive outlook for tankers and dry bulk, with robust long-term contracts and future-proof tonnage gaining traction. In the container and chemical markets, we have secured most of our exposure. We've added a slide showcasing our newbuild delivery fleet list, with 44 or 45 vessels covering all delivery dates. You may review that at your convenience, as it's a significant fleet scheduled for delivery in the coming quarters. With that, I would like to conclude this portion and hand it over to Enya for the Q&A.

I see an analyst has a question. You can now unmute and ask your question, please.

So starting with the dividend, I think someone was quite surprised that you're reinitiating dividends. How should we interpret that dividend payment? Is it primarily intended to satisfy the Golden Ocean shareholders? Or can we expect more of a recurring dividend of $0.05 per share in the coming quarters?

Thank you, Evan. I'll respond to that question, Alex. The Board has decided to implement a dividend policy. We will distribute dividends quarterly and assess our balance sheets, profit and loss statements, and cash flow needs to determine how we can reward our shareholders or continue investing in new projects. We do not have a fixed payout of $0.05; instead, we follow a discretionary approach. However, as mentioned in earlier earnings calls, we value dividends. We have distributed them frequently in past quarters, and we believe we can provide a $0.05 dividend for the second quarter results following the merger.

Over to a more strategic question. With the completion of the Golden Ocean merger, what do you think will be the focus for the company in the next few quarters? Given the large tanker and dry bulk fleet, are you exploring other segments or is it just business as usual, selling assets and ordering new ones when you find great opportunities?

Well, it's going to be, indeed, business as usual. We have five divisions that we are very keen on. If we see opportunities in the five divisions, we will pursue them. Of course, our focus will also be on properly integrating the fleet. A lot of work needs to be done now operationally and technically to ensure that all our platforms can work together effectively. However, with our size and scope, if there are any significant opportunities that arise, we will certainly investigate them.

Maybe first for Ludovic. Could you share more details regarding the timing of the ongoing refinancing post-merger with Golden Ocean? Any insights regarding the target LTVs and potential changes in the covenant structure? And then for Alexander, how do you gauge the U.S. presidential action against the expected stricter greenhouse gas rules of the IMO? Do you see any impacts on your pipeline for potential long-term charter conclusions, particularly for dry bulk? Lastly, could you provide the normal quarterly run rate for SG&A excluding the deal and merger fees for the pro forma group?

Yes, great. Thanks, Kristof. I'll start with the refinancing. We have refinanced the whole Golden Ocean fleet. We had refinanced the former tanker fleets during our last M&A on Euronav. All newbuilding files and modern vessels have roughly 8 to 10 facilities on bilateral club deals of smaller sizes, which have all been concluded. As I mentioned, on the remaining CapEx of the $1.86 billion, $1.6 billion has already been signed or is being implemented on the ships. The heavy lifting regarding financing and refinancing the fleet has been done. Regarding our new set of covenants, we are moving away from book equity on total assets, which you’ve seen in the last earnings releases, to a value adjusted equity; this has already been implemented across all facilities, except for the Norwegian bonds for the time being. As for SG&A, while our SG&A has grown proportionally with the size of the company, certain exceptional costs associated with the prolonged M&A activity over the last three years have influenced this growth, such as legal fees, financial advisory fees, and refinancing fees. I can provide a sensible answer that it will be lower than what we see today. However, let’s take the next six months to see how we can put all platforms together and optimize costs regarding SG&A.

On President Trump, thank you very much for your thoughtful questions, Kristof. It's reported that U.S. interests will attempt to persuade members to vote against the IMO 2028 regulations aimed at reducing greenhouse gas emissions. However, it's challenging to predict the implications this will have. A significant political maneuvering is involved. The last time these regulations were discussed, voting was limited due to many countries' absence. This time, attendance is vital. The outcome could vary greatly, but I wouldn’t interpret this resistance as an assurance that the regulations will not pass; there are various interests in play. We believe there's still a good chance these regulations will gain approval, but we won't know for certain until early October. Regarding the impact on our clients, those discussing ammonia and hydrogen-powered ships have maintained their perspective despite President Trump's opposition. This has not altered since his opposition began. In fact, if the IMO regulations are approved in October, this could trigger increased interest in long-term charter opportunities.

I want to follow up on Evan's question regarding your fleet composition. Golden Ocean had a modern fleet, but the merger also added some middle-aged Panamaxes and Capesizes. Could you elaborate on your approach toward those vessels, along with the older tankers already in your fleet? Should we anticipate the sale of a significant number of those assets in the upcoming quarters?

As you know, we aim to operate a modern fleet, so fleet rejuvenation will always remain integral to our strategy. If we can sell an older vessel at a good price, especially one from the Golden Ocean fleet, we will certainly do so. If we encounter interesting newbuilding opportunities, we will pursue them as well. However, I must stress that these actions will not occur at any cost or at any time; we will assess the price, our cycle positioning, and counterparties. For example, we just recently sold a 15-year-old Suezmax for $40 million; that is a very sound deal for us as it rejuvenates our fleet and provides excellent returns. In summary, we prefer to operate a modern fleet, and the older vessels in the Golden Ocean fleet may be available for sale, but not at any price, and we do not intend to set a fixed timeline for that.

I have a question regarding the contract you signed with Fortescue for an ammonia-powered Newcastlemax. Should we anticipate the vessel to utilize ammonia from the outset? To what extent is the infrastructure for bunkering already established?

That's a great question, which I cannot answer right now. We are working diligently to ensure that we can bunker the first vessels coming out of the yard. As soon as we have updates regarding this, we will make it public. Our goal is for that ship to be powered by ammonia, and it's Fortescue's goal as well. A lot hinges on whether the molecules will be available and whether the bunkering operations can run smoothly. We believe this can be achievable, but it may be premature to confirm anything definitive at this point.

I have two questions. Regarding the anticipated growth in iron ore volumes from Africa, especially during '26 and '27, do you expect these volumes to replace existing volumes? If so, from where? My second question relates to potential share buybacks, considering that the stock is trading at a significant discount to the net asset value; is this something you would consider?

With regard to your first question about iron ore volumes, the market isn't in great shape, so the answer is probably yes. If the market is favorable, the anticipated volumes in our presentations can coexist. The pricing of iron ore will be an essential factor to monitor; whether the Guinea volumes will disrupt Brazilian volumes or compete with Australian ones is still unclear. What we expect, and it’s echoed by analysts, is that this will generally have a positive impact on our market.

And regarding share buybacks, Axel, these are one method to reward shareholders and serve as an alternative form of distribution. However, we need to consider that with every major merger, there's a natural rotation of capital as previous Golden Ocean and Cmb. shareholders shift their positions. This will be analyzed meticulously. However, our primary focus is on closing the merger and providing clarity for all shareholders moving forward. We will allow a few quarters to see how operationally effective we can be as a company, integrating fleets and enjoying our strong positioning in the tanker and dry bulk markets. Historically, we've seen value start to rise, and share buybacks will always be considered as an option.

I do not see any hands raised at this moment, nor do I observe any questions in the Q&A.

Okay, then this concludes our call. Thank you very much for joining us. If you have any questions, feel free to reach out to us or my colleague Joris Daman. Thank you very much. Bye-bye.