Hello, everyone, and welcome to the NORDEN Full Year 2023 results presentation. My name is Seb, and I'll be the operator for your call today. If you would like to ask a question at the Q&A session at the end of the call, you can do so by pressing star one on your telephone keypad, or press star two if you'd like to withdraw your question. I will now hand the floor to Stig Frederiksen to begin. Please go ahead when you're ready.
Thank you very much. My name is Stig Frederiksen, and welcome to the NORDEN Full Year call. Before I hand over the word to Jan, just our forward-looking statements, please, read these, as, of course, we have some statements going forward into 2024. With that, I hand over to Jan. Jan?
Thank you very much, Stig. My name is Jan Rindbo. I'm the CEO of NORDEN, and let me start by highlighting some of the key highlights for 2023. So NORDEN delivered a net profit of $400 million a year. We delivered 32% return on invested capital, and this means that this is one of the best results in NORDEN's history, and we are delivering these results despite lower markets, both in dry cargo and tankers. Strategically, we achieved some key milestones in the year, which I will come back to a little bit later. We also continued our high cash returns to shareholders, and then finally, we are expecting a net profit for 2024 in the range of $150 million-$250 million.
Let me hand you over to Martin for some financial highlights.
Thank you. We'll start with a brief look at our Q4 numbers. We made a net profit of $43 million in Q4, in line with expectations. Both business units delivered positive results, but by far, the majority of the earnings were actually made in the Assets and Logistics business unit, which generated $41 million. We continued to make good cash flow with a free cash flow generation of $30 million, which actually means that at the end of the year, despite paying out substantial dividends during the year, we ended with a net interest-bearing debt position of only $45 million, even when including all the lease liabilities on the balance sheet. Finally, let me say, we continued to deliver an attractive return on invested capital of 14% for the quarter, which brought the full year number to 32%.
Next slide, please. Looking a bit at our market exposure and our market outlook, let me start out by saying that actually, we have spent a substantial part of 2023 building a fairly large deferred market exposure towards the dry cargo market. We believe the dry cargo market has attractive outlook, not least because the supply side is looking very attractive, with limited yard capacity and a limited order book. And during the year, to sort of take advantage of this situation in the long term, we have ordered 17 new buildings in the form of both real new buildings and long-term leases. And in addition to that, we've been acquiring five second-hand Capesize vessels, so a substantial increase in our exposure to that market, which we believe will be attractive.
On the tanker side, we actually still believe that the market will remain firm in the short term. Nevertheless, we have felt that we wanted to de-risk the portfolio during 2023 by selling vessels and chartering out vessels, which basically means that we have kept a fairly high exposure following sort of the market during the year, but taking a little bit of the top of the risk off. That brings us to the position for 2024, which by early February was an open position in MR tankers of 6,300 days, vessel days, that is, and in dry cargo, an open position of just over 4,000 vessel days for the remainder of 2024.
As you can see from the top graph, that position in dry cargo is composed of a short position in the near term in Q1, after which we have added length in the rest of the year and in future years, which, as I said, brought the entire net position in dry cargo to a positive for 2024. Please turn to slide number seven.
All right. Thank you, Martin, and let's just turn to a strategy update, because in 2023, Norden has made a strong progress in the execution of our strategic priorities, which means that today, Norden stands as a global provider of ocean-based freight services for dry and liquid bulk, as well as project cargo of all sizes. And that means that we can now integrate freight with port logistics and also decarbonization solutions to our customers. During the year, we have achieved some specific milestones. Importantly, we have entered into the Capesize market, and this is supported by the acquisition of five owned vessels during the year. We've also expanded our customer offering with projects in parceling, where we've seen both commercial and cost synergies realized in the second half of the year.
We've invested in the future of renewable fuels through a minority stake in Mash Makes, and we have signed the first emission reduction freight contract and also concluded the first proven claim transactions. From this year onwards, we have also introduced a strategic scorecard, where we are outlining five key performance indicators and targets. This has the purpose of measuring and communicating the development of the value creation, the growth, the profitability, decarbonization, and also shareholder returns for NORDEN. Moving to the next slide, also part of our strategic achievements for 2023, we have made some major progress on the ESG agenda. So let me just highlight a few points related to the environmental and social agendas.
We have, on the environmental side, we have lowered our emissions, measured by EEOI, by 9% in the year. That means that we are well on track to reach our midterm target of minimum reduction of 16% by 2030, all based on a 2022 baseline. As mentioned before, we have invested into the future supply of alternative fuels by buying a minority stake in a biofuel scale-up called Mash Makes, and we have the first biofuel trial scheduled on one of our vessels here in 2024. We also signed our first green emission freight contract with Teck Resources, a Canadian mining company.
On the social agenda, we have achieved our target of reaching 41% of the underrepresented gender among our employees, and that means we have now reached our target of reaching a minimum 40%. Let me turn to guidance and the final remarks. In terms of guidance, we have, based on the current market outlook and position, we have set a guidance range of $150 million-$250 million net profit. When you look at the underlying business units, we expect lower margins in Freight Services and Trading, especially in the first half of the year, due to increasing charter costs in the market. On Assets and Logistics, we continue to benefit from high earnings coverage, both in dry cargo and tankers at profitable levels.
Finally, in terms of our distribution policy, we have decided to base this now, still on a payout ratio of 50%, but now with the board of directors having the flexibility to allocate between dividends and share buyback programs. With that, I'm moving into the final remarks. Overall, a great financial performance in 2023. We are expanding our market exposure in dry cargo due to a structurally positive market outlook. We remain positive on the near-term tanker market as well. We are well positioned to continue to grow the business in 2024, now with the successful integration of Project Compass Link and also the expansion into Capesize.
We had a strong execution on our ESG agenda in 2023, and that remains high on our agenda also here in 2024. We continue to have high cash distribution to our shareholders. We had $337 million announced for the full year of 2023, with a final dividend of DKK 10 per share, bringing the total dividend to DKK 45 per share. We've also announced a share buyback, buyback program of $125 million. Then finally, based on our agile business model and high earnings coverage in asset and logistics, we expect a net profit for the full year 2024 of between $150 million-$250 million. So that concludes the initial remarks, so I would like to hand over the word to the operator for Q&A..
Thank you. If you'd like to ask a question, please press star one on your telephone keypad, or press star two if you'd like to withdraw your question. The first question is from Evan Coldstout from Clarksons Securities. Please go ahead.
Thank you. So let's start with the quarterly performance of the freight services and trading units. I know we don't like to give too much information about the unit, but could you please, please give some more detailed information about the profits for the dry bulk and tanker units? I know you are quite bearish, bearish towards the dry bulk market. Did that impact your trading margin for the quarter?
Yeah, hi. Yes, you're right that we don't actually give the specific figures for the two subdivisions, if you will. But it is true that we entered also into Q4 with a bit of a short position in dry cargo. We have actually spent the time in Q4 rolling that into Q1. So I would say that has been a factor in the slim margins that we have realized in the Q4 numbers in FST. We are now, as I said, for 2024, net long, and that is actually a development which is continuing also in the last few days.
Okay, thank you. So moving on to the new strategic targets. Looking at your target for the trading margin of $500 per day as a minimum, could you please say something about how you end up arrived at $500 a day? Since it seems a bit conservative.
Yes. So, as you can see in the numbers, historically, we have achieved earnings of $1,206, but that includes a phenomenal year that we had in 2022, where we achieved margins of over $3,000 a day. So we believe that year was an exceptional year, which we cannot necessarily expect to repeat, although we do think that we have that upside in the business model to do that. But the $500 is more just to say that is a minimum target that we would like to communicate to our shareholders, that we expect that we will be able to generate over time in that business unit.
Also noting that when you look at the NAV value and then the market value of Norden, that there does not seem to be much value attributed to the freight services and trading business. So this is a way for us to communicate that we believe that over time, there is definitely value in this part of the business, and $500 a day is our way of saying that this is what we expect that we, as a minimum, can achieve over time.
Okay, I got it. Finally, when it comes to your guidance, so what needs to happen for you to achieve the guidance on the lower end? And what needs to happen for you to get on the higher end of the range, like in terms of at least for dry bulk rates?
So on, on the dry bulk side, as Martin was referring to earlier, we are actually building the position now. So, being net long the market, then clearly we would need to see a disappointing development in dry cargo rates to be moving towards the lower end of that guidance for those days that are exposed to the dry cargo market. And then the opposite, of course, is the case of moving towards the upper end of that target. You will notice in those days that we have disclosed that we still have a higher exposure to the tanker market compared to the dry cargo market. So in the short term, so for 2024, as we speak now, we have more exposure towards the tanker market than the dry cargo market.
But again, I think it's important to continue to highlight that these are dynamic positions, and especially in dry cargo, we've seen in the past that we can change these positions through our agile tonnage capacity model, where we have the ability to charter in more ships in case we have a higher degree of conviction in the dry cargo market. So, for us to, you can say, surprise to the upside, we would need to see probably a continued building up of exposure in dry cargo, and then a continuation of the dry cargo market to surprise on the upside when we look into the second quarter onwards.
Okay, thank you. That's all from me.
Our next question is from Ulrik Bak from SEB. Please go ahead.
Yes, hi. Also a few questions from my side. The first one on your guidance and the variability of that guidance. So in terms of Assets & Logistics, would it be fair to assume that that should be fairly stable and perhaps even at the levels that we saw here in Q4 for 2024?
So stable is perhaps overstating it, but it's true that the business unit has a fairly high cover. But of course, some of the tanker exposure is also placed within that business unit. So that would be the main sensitivity.
All right. And, and then for, for this, you have a comment that, gains from vessel sales and subleases of $59 million has been included in, in the guidance. Can you just elaborate how the phasing of those $59 million dollars will be and what vessels you have sold, and yeah, any color you can give, please?
Yeah. So we don't comment on the specific individual vessel sales, but I think what we can say here is that in terms of the quarterly sort of replacement of these vessel sales, so this is very front-loaded of the sales that we know of today. So you should expect them to come early in the year.
Sure. But no color in terms of dry bulk versus the tanker vessels? And also, if I can add a question on, did you intend to sell further vessels?
So it is a mix of both the dry cargo and tankers. And clearly, the significant gains are predominantly on the tanker vessels because of the high asset values in that part. In terms of further sales, then, again, it is something that is dynamic, and we look at opportunities as they come in. We are not actually right now looking at selling more tonnage. You may have noticed that towards the end of the year, we bought a basically a resale Capesize ship that has joined our fleet here in January. And that is, you know, part of building up our exposure in dry cargo.
Understood. Then in terms of your freight service and trading, obviously, we saw quite a steep decline in earnings. But you mentioned that you expect, like the second half of 2024 to be better than the first half. Can you please just elaborate on why that is?
Yeah, I would say it's to do with what I talked about earlier, that we have rolled in the short position into Q1, which basically means that we have, let me say, not been able to capture so much value from the rising dry cargo market here in the front end. But as we have already built the long position for the remainder of the first half and into the second half, as long as the market stays strong, of course, we should have more benefit of the strong rate environment in the second half.
Okay. Okay, that makes sense. And then just some comments on the Red Sea situation, and also how the rate increases that we've seen, how has that impacted your business and your positioning? Perhaps you already discussed it right before, but some further comments would be appreciated.
Yeah. So I can start by saying that, if you look at the dry cargo side, it's actually only 6% of global trade that moves through the Red Sea. So it's a smaller portion compared to... well, especially the container, container business, but also the tanker business. But what we are seeing, of course, now is an increasing number of ships being rerouted south of Africa. It's fair to say that bulk owners in general have been slower to reroute the ships. It started to be sort of very much a container issue, but now more, more dry cargo ships are being rerouted.
We have not seen, in our opinion, the full effect of this yet because it's only really in the last 3, 4 weeks, perhaps, and for some even shorter, that this rerouting has started, and therefore, these ships are not missing, so to speak, in the global markets yet. So we think there's more you can say strength to come into the market from the rerouting of ships. And that's also why you're seeing seasonally very strong rates in dry cargo at the moment. And then it's a similar, similar picture on tankers, where I think the rate reaction has been even stronger and earlier because you know, product tanker trades have a higher proportion of trade going through the Red Sea compared to dry cargo.
And here we see, again, strong rates for MR tankers, our segment, at the beginning of the year. The way this is impacting us is that, of course, the Red Sea is a new event that has happened, and therefore, where overall for the Norden portfolio, also looking much, you know, further than just 2024, this is a net positive to our portfolio because we see increasing asset values, increasing forward rates, you know, beyond 2024. So overall, that is benefiting our position.
Of course, in the short term, and this is, talking about the, Freight Services and Trading unit, the cost of chartering in ships to carry the cargoes that we've committed to has gone up, which is part of the issues that margins are squeezed in, in that part of the business.
Okay, thank you so much. I've no further questions.
I currently have no other questions from the telephone lines.
All right. Okay, well, thank you for the interest, and thank you for joining the call. Thank you for all the questions. We look forward to talk to you again, when we have our first quarter result in April. Thank you and good day.
Thank you. This concludes today's conference call, and you may now disconnect your lines.