Good morning, everybody. My name is Tue Østergaard with HC Andersen Capital. Today, I have the pleasure to host a presentation of the full year results for DS Norden for 2022. We'll go through the presentation in a moment. Please ask all your questions in the chat below. You're very welcome to put any questions forward, and then I'll try and make sure we get to it. We have approximately 30 minutes. Welcome Martin Badsted, CFO of DS Norden, and well done on a very, very big numbers for 2022.
Thank you very much, Tue. Yes, as was just indicated, we have a presentation for you guys here. Actually, I will try and go relatively briefly over some of the slides because I think it would be interesting for us to have a Q&A and maybe spend most of our time looking forward on what is going on in the markets and where do we see Norden being positioned in terms of those developments. Let's secure order, start a little bit with the full year 2022 highlights.
We end the year, I think, with a great quarter, making $205 million in Q4, which really concludes what I think is a fantastic year with a net profit of $744 million for the full year. We make money in both our business units, as you can see, $193 million in Assets & Logistics, and a staggering $550 million in the asset-light Freight Services & Trading business. These are really the best results in Norden history, and I think to us really demonstrates the power of the business model, that even though we try to run a relatively asset-light and agile model, we can actually capture substantial upside when the market is going in the right direction.
You can see that in our NAV development, which is up to $2 billion at the end of the year, which on a per share basis is 422 DKK per share, which actually importantly only encapsulates the Assets & Logistics fleet and the cash position of the group, but it doesn't really include any value from the Freight Services & Trading business. We were very active in 2022 in positioning our portfolio through the volatile markets. I think the effect of this is really that we have shown that we can thrive in volatility. We don't have to be afraid of it. We can actually live off it.
One indication is that we actually was very aggressive in selling dry cargo ships during 2022, so that we are now down to 7 vessels at the end of the year, of which actually 3 have already been sold. So we have, I think, demonstrated that we could actually exit a lot of that exposure close to the peak of the market. On the other hand, we have been exposed during most of the year to a soaring tanker market, which I think really has benefited results, especially in Q4, and will also impact greatly our guidance for the coming year.
Based on these strong results, the board has proposed a final dividend for the year of DKK 30 per share, which you will remember come on top of the 2 times DKK 30 per share that we have paid out in August and November as interim dividends. On top of the $130 million share buybacks we have done during 2022, we now start a new buyback of $50 million on top of that. That actually brings, when you add it all up, our payout ratio close to 90% for the year. For 2023, we have issued guidance of earnings on a net result basis between $330 million and $430 million, and I'll come back a little bit later to how these numbers come about.
Looking a little bit more into what it was that we did during 2022 to make this, these earnings and capture this value in our NAV is really indicated by this graph that some of you may have seen before, where we started the year on the red line, being overweight dry cargo in a strong dry cargo market, and then deciding around the end of Q1, start of Q2, that the opportunities were more attractive on the tanker side. You see that our tanker exposure was gradually then increased during the rest of the year, so that we are now clearly overweight in terms of risk exposure, overweight towards tankers.
That still means that we run 450 ships in dry cargo or in our FST business. We are actually able to have that fleet and still actually reduce the risk to a very low level because we're not very bullish currently on the dry cargo market. With this, I think I will skip a couple of the next slides. You're of course, welcome to ask questions about it. I think some of them can be excluded.
One thing I will mention, though, is that even though I talk about how we have reduced our risk in dry cargo, I think it's important to note that we still have a lot of optionality and with those, options, a lot of upside, if the markets continue either in tankers to be strong or if they turn around in dry. You will see from this slide, we have around 77 purchase options, which really means that on 77 on our time charter contracts, we can actually declare an option to purchase the ship. It's not something we have to do, but something we can do if the market is strong.
If you compare the red lines here with the red dots, this indicates the intrinsic value currently on the tanker side, you will see that the red line is above the dots, which really means that there's a positive value in these options right now. Whereas on the dry cargo side, the blue dots and the blue line more indicates that the options are sort of at the money, which means that there's not a lot of downside because that's not a lot of value, but there is plenty of upside if the asset values or the time charter rates start to go up. Looking at our valuation, we typically view our business as split into the two business units. On the left-hand side here, we have Assets & Logistics.
This is more traditional ship owner type of business, where an NAV type of valuation can be appropriate. And we show you the updated values here as of the end of December, with the market value of the fleet and mark to market of the TC and cover portfolio and so forth, bringing us to a total NAV for that business unit of $2 billion, which is, as I said before, DKK 422 per share. On the right-hand side, there's the Freight Services & Trading business, where we feel an NAV is inappropriate, and it's more of an earnings-based valuation.
Even if you exclude the 2022 results as a bit of an outlier, you can see from the bottom here that the average over the period 2019-2021, so those three years, we made an average of $100 million per year in that business unit, which if you just apply a multiple of five, would actually yield DKK 104 per share on top of the NAV shown on the left-hand side. Just for reference, I think we're trading around DKK 400 per share this morning. Turning to the markets, both what happened in 2022 and where do we see the markets going forward from here. Q4 was basically a continuation of what we saw in Q3, meaning that the dry cargo market weakened further.
We saw the one-year TC rate for Supramaxes decline by 8% down to $13,000 a day, and the 5 year-old Supramax value declined by 4% to $27 million. This is really sort of the erosion of the tightness that was built up over the preceding 12 months, driven by less congestion, less spillover from a strong container market, and less commodity volumes transported in the rest of the world as a result of general macroeconomic weakening. It was a completely different picture on the tanker side, where we saw soaring and very volatile product tanker rates. The MR one-year rate increased almost 20% to almost $35,000 a day, and the price of a 5 year-old MR was stable at around $44 million with a little bit of an trend upwards.
The market here has been driven really by both refineries working at full capacity, giving rise to a lot of trade between regions, but certainly also the sanctions that come into place as a result of the Russian aggression against Ukraine, where we saw first the crude embargo in December, and now just recently the product tanker embargo against imports into Europe, coming into force here in the beginning of February. Looking forward on the dry cargo market, we expect 2023 to be weaker than 2022. The main weakness will probably be here in the first half of the year, and we have seen a very, very weak start here in Q1 across all dry cargo segments.
We do think that the second half of the year is likely to be stronger and beginning of sort of an upturn again in dry. We do see a macroeconomic slowdown which will limit growth in commodity volumes outside China at least. As still there is very little support left from congestion and container spillover. Last year, we saw pretty strong demand growth from coal, not least longer coal distances, and we think that will still keep a high level, but there will be less growth support on that front in 2023. Of course, the final joker here, which is really the Chinese reopening, which is happening, and we are seeing some good positive indications, and that will, I think, support growth in the second half of the year.
We still think that the key property sector will take some time to recover, and will mainly be sort of a late 2023, early 2024 story in terms of adding to demand. Very positively, supply growth seems to be contained. Even though we've been through a year and a half of good rates in dry, we've seen very little ordering. And we only expect global fleet growth of 2-2.5% for the coming 2 years of 2023 and 2024, which really means that we don't need a lot of demand to keep the market at attractive levels. The tanker market is, as I said before, extremely volatile, but we also expect it on average to be very strong in 2023.
It is really driven by, as I said before, longer trading distances, more ballasting, less efficient use of the entire global fleet, as a result of the sanctions that have been put in place. Maybe a little bit surprisingly, oil demand fundamentally is actually holding up quite well and being now supported also by the Chinese reopening, leading to people driving more and not least traveling more, which we expect to add to jet fuel demand. It's important to say that there is around this very strong base case that we are expecting, there is a lot of uncertainty, political uncertainty and also uncertainty about the macroeconomic outlook.
You just saw a little bit an indication of that in Q1, where rates came out of Q4 on a very strong note and then almost crashed in Q1, as a result of vessels being sort of in the wrong place, and only now in the last few days actually, regaining some strength. Here on the supply side, the picture is looking quite benign. We are looking at a historically low order book, below 5% in the total tanker market, and not a lot of interest, on this front.
Also here we expect fleet growth close to 2% for both 2023 and 2024, which I think bodes well for the general outlook of the market also in the near term or in the medium term. Summing up a little bit about our guidance for 2023. As I said, we expect to make $330 million-$430 million. On the Assets & Logistics side, we expect slightly improved earnings in 2023. That business unit has a fairly high cover of its tanker fleet and its dry cargo fleet by way of how the business model works. And that means we have decent visibility on that business unit and good expected profits there.
Freight Services & Trading, we expect a significantly lower result for 2023, also due to the fact that 2022 was just such a staggering performance, coming from $550 million of earnings. FST earnings will be driven mainly by tankers in 2023. We will see a positive contribution, or we expect so, from dry cargo also, even though the market is extremely weak currently. It will be tankers that mainly will be driving this development. That basically concludes my presentation with the final slide here. An annual profit of $744 million, the best result in Norden's history, and a return on equity of 64%.
This has come about both in a strong tanker market, but certainly also as a result of good positioning in a declining dry cargo market. Our NAV for the Assets & Logistics part is up to DKK 422 kroner per share. That is, of course, before the dividend of DKK 30 kroner being paid out in about a month's time. As I said, the board is also committed to a share buyback of an additional $50 million for 2023. I think that then concludes finally my presentation, and I think, Tue, we'll be open up for questions.
Yeah, definitely. Definitely. Let's start by your guidance...
Yeah.
because I think that will be, that's the forward thing here. You come from a sort of $744 million result, and now you're guiding half of it, basically. What? I guess many of the sort of investors we talk to, they are concerned about that you upgraded, I think, six times last year. Can you put any sort of flavor on this guidance? How much of this is already in the books? What is actually your coverage these days, so you can get, as an investor, a feeling for this?
Yeah. Let me just touch upon the multitude of upgrades last year. When we do guidance, we rely on the forward curve for freight. That forward curve last year was on many occasions in steep contango, which basically means that the expectation for the future was higher than the current. That basically means as you go through the year, even though the book is more or less the same, you actually have a pickup in the rates that you can make, and there's sort of an automatic uptick in the results. That is not something that we expect to nearly the same extent this year.
The Assets & Logistics part, because it has a high cover, certainly in dry cargo, where we're actually a little bit short, so we have a little bit more cover than we have capacity, and we have about 70% cover on the tanker side in that business unit. That means we have decent visibility there. I said during my review of the guidance that we expected slightly better earnings in that business unit, and we made $193 million in 2022. Slightly better, let's call it 200 or a little bit more. That is the place where we have good guidance or good visibility.
Yeah.
On the Freight Services & Trading side, it's more open because we have to create this value during the year, especially in dry. Of course, there is some positive value starting the year here, already from the tanker side. We have 9,200 open MR days on the tanker side in Norden across both business units. You can just see in the last 3 days, market has gone up by more than $10,000 a day in the near, in the nearby, and maybe $4,000 a day in the deferred periods. Massive swings in our expected earnings, and in freight rates. That actually is a little bit difficult to make very precise guidance.
Yeah, of course. I think that's a fair statement. Just on the dividend side, I mean, I guess it's DKK 90 this year you will be paying out in dividends with the final DKK 30. You expect the DKK 30 to get done after the AGM, is that correct?
Yes.
Yeah.
That would be, I guess, mid-March.
Mid-March, okay. Can you tell us anything about your, I guess this more policy question, to the dividend for 23. There's a question here about the 23 dividend. I know it's very difficult now to say, but can you perhaps explain the dividend policy?
Yes, good question. Yeah. Our dividend policy is to pay out minimum 50% of our net result in dividends. That is just a minimum, I would say. As I said, if you add the share buybacks and the dividends for 2022 that we have paid out already and decided or proposed now, we are sort of close to a 90% payout ratio. I think on long stretches, we can actually pay out most of our earnings because we don't need to invest a lot. I do think that this time, we have actually divested, as I said, quite a lot in dry cargo, and we will be looking to reinvest.
We are keeping a little bit firepower in our balance sheet to be able to ramp up that exposure again.
Okay. I hope that that's an explanation for the 23 dividend and going forward actually, how you will, how you will manage these or big profits, I would argue, these days at least. Maybe we go back to the market developments and perhaps discuss a little bit about product tanker, because you are obviously short in the bulker market, but you are along, or at least you perceive the opportunities higher in the product tanker market.
Maybe, just to clarify on the dry position in Freight Services, we are short in the front, so the coming 2 months basically, but we are long in the back end The long end.
Because I think that, you know, if you read the papers and link the Norden investment story to the papers, it's all about Russia and all these things about the abandonment of imports from Russia. Maybe you could dig a little bit deeper into what you've actually seen in the market with these changes in patterns.
The, this perhaps surprising thing to many people is that we haven't seen big changes in Russian exports of products to Europe before the embargo. Up until, you know, a few days ago, actually, Russia was selling a lot of diesel and products in general to Europe because that is what they have been doing for years and years. Only now are we sort of can we start to see the developments and how that exact embargo will be managed. Our expectation is that some of the diesel that normally go into Europe will then be sent either to Middle East or to Asia, and then instead, Europe will have to import its diesel from elsewhere. It could be the U.S. or it could be Middle East.
That of course, obviously to anyone, adds a lot of trading distance. That's a much further, going from either, Middle East into Europe or from Asia into Europe instead of just taking the diesel in Russia. What we are seeing is that what is called, products on water, so what is actually in ships on the water currently, has gone up quite a lot. Not because overall volumes are growing, but because they are spending more time on ships. That is really what is driving demand at the moment, and we think there is a lot of that effect that is still to come because the embargo only went into force here on the 5th of February.
Perhaps a very difficult question, but if you're an outsider like we are as investors, what would you monitor to see the effects of this? How would you get a grip on this? Because it's very difficult to get a feeling for what's actually happening.
Of course, one place to see it is in freight rates, but I understand that for investors that is a little bit too late because then it is priced in. This is actually really difficult, and we are in territory that none of us has ever been in before. So of course, we are spending a lot of time tracking all the vessel data and the volume data and product data that we can find. For the individual investor, I think the overall question is, do you think these sanctions will remain in place? Do you think that they will more or less be enforced and not be full of, you know, holes going forward?
Because, the, in the big scheme of things, this is about tightness being built in the market as a result of political constraints. If they are still there, then I think, and we think tightness will remain and freight rates will be high. If there are holes, if the politicians sort of make exemptions here and there, that is something to watch out for. That is the downside risk.
Yeah. Just perhaps continuing on the product tanker market, there's been basically no initiation of newbuildings. The order book looks very strangely low considering the freight rates. Can you perhaps explain that a little bit to us? Because normal behavior would be to start ordering.
Yes. I think that is a very good question, and it's actually not something that I would say I have the perfect answer for because we are also scratching our heads a little bit. I do think there are a couple of reasons that we could mention. One is many yards filled up their order books with container vessels early in the cycle. There's not enough room on those few yards that can actually build tanker vessels. There is another thing, and that's the whole technological uncertainty as a result of the global drive towards decarbonization.
A vessel typically lasts, 25 years, and so you can easily imagine if you order a vessel today, and let's say you get it delivered in 25 or 26, you are on the hook for a risk that stretches a long way into the future. Since you don't know what the future technology will be and what the future, price of carbon or restrictions on that will be, I think a lot of investors are hesitating to actually put money into it.
That of course, leads to the effect that even though we, the world may be decarbonizing, even though global oil demand is likely to peak at some point and then decline, you could actually still see a decent tanker market because the supply side is overreacting in the sense that too few ships are actually being built.
I guess what I'm trying to get to is that the structural interest for the product market now is much higher than the bulk market.
Yeah.
That's at least my impression, seen from the outside. That's simply because of the order book. It's just more interesting, right now.
Yeah. Both order books are actually quite low.
Yeah. I know, yeah.
Same picture.
True.
I will say that there is starting to be also a good sentiment in dry bulk due to the China reopening.
Yeah.
It's actually a hard choice to choose between them at the moment.
Fair enough. I'll just take a few questions, Martin. There's a question on the experience of demand for vessels driven on green fuels.
Yeah.
Can you perhaps elaborate a bit on that?
Yes. Also a very good question and something that preoccupies the entire industry quite a lot. There's no doubt that the hunt for alternative fuels is a very, very important part, maybe the most important part of the solution towards decarbonizing shipping. A lot of research is going into this. There are various different candidates, and they have pros and cons. We ourselves participate in the Mærsk Mc-Kinney Møller Center for Zero Carbon Shipping, which is really a research institute to evaluate these different types of fuel and see how the infrastructure can be established to make it real.
As I said, there's no real clear winner at the moment, but a lot of the vessels that are being ordered at the moment are being ordered with dual fuel capacity, so at least that they can actually switch over to greener fuels some point in the future. I think it's important to note that both in product tankers, but especially on dry cargo, we are doing shipping that doesn't have fixed routes. We never know where the next cargo will take us. That means these industries are probably the last, or the least obvious ones to start with a lot of new fuel types. Because a container vessel can rely on alternative fuels being there in Rotterdam or in New York and so forth.
The dry cargo vessels cannot really rely on alternative fuels being in West Africa or being in South America. I think we are tagging along a little bit to the bigger shipping segments of container.
I'll take another question, Martin. It's about the diesel from Russia. If you see any risk that it will just simply be rebranded, exported to India, rebranded back to Europe? I don't know. It's a fair question because it's possible, of course.
Yeah. I think that goes a little bit to what I said before about poking holes in the sanctions regimes. It's not something we are seeing now, but I'm sure that there will be creative people finding ways where you transport this diesel or crude to some place where you can blend it with something else. At some point, it is less Russian and more something else, and you can call it non-Russian oil. Yes, I think that is a risk. It's not something we are seeing at the moment, but it's certainly something that could happen in a downside scenario.
Yeah. Fair enough. Is there any more questions then put on here? Let me just see. Yes, here we go. No, perhaps back to the bulk, and the sort of prospects for that, because you said you are short in the short term and long in the long term. Perhaps you could dig a little bit more into that because what are the prospects on a longer term than just 23? Is that fair to say? You explained about the order book is still very low, but what are the driving factors? Perhaps discuss a little bit about China again and the reopening of China.
China has for many, many years been sort of the key driver in dry bulk shipping. Every time China had strong growth, dry bulk tended to be strong. At the moment, China is transitioning over to become more service-oriented, less heavy industry-oriented, and less infrastructure-oriented. At the same time, they're having huge problems in the property sector, where they have overbuilt a lot of property. I think at the moment, they are trying to re-stimulate a lot of infrastructure projects and a lot of property projects, which I think for 2024 should lead to added demand both in terms of bauxite and iron ore and coal and so forth.
With the low order book, you can, I think, be fairly positive, for 2024, of course, subject to what else can happen, around the world. We are seeing the same trend that we talked about, on the newbuilding side, that very few orders are coming in to the dry bulk order book, which means that I think people are expecting a China that is slowing down a little bit in terms of, commodity imports. Something again where very little demand is needed for the market to be, to be good, out in 2024.
Perhaps just a more general question on this is that the fact that the interest level worldwide has increased substantially and very fast, how has that affected your business overall, and how will it affect your business going forward?
I think we're speculating a little bit, but I would say that, I think that has been a contributing factor to the low order book because you need to believe in a higher required time charter rate to make a newbuilding order when interest rates are high. It's not free to just sit with the asset and wait for the market. I think in that sense, it has impacted. It is something that we are seeing, not just interest rates, but also in the operating OpEx expenses, for crewing and maintenance and so forth. Prices are going up. That also, to some extent, could lend some support to the long-term market.
One of the winners of long-term interest rates increases.
Let's see.
Fair enough. Fair enough. I think we are out of questions, Martin. Thank you very much. I'll just conclude here. Thank you very much for the presentation. It was very encouraging. To see you make $744 million is a lot of money, so well done on that. There is, that just came in, a last question here. Yeah. I think it goes to your business model. When the tanker market is expected to be tight in the future and supply is limited, will you still have the same possibility to take positions and make money in this market when you don't own the vessels?
There will still be opportunities for us to take positions and make margins in the market. It's also fair to say that if you are a big tanker owner and you have a sort of a fixed cost base with a lot of own ships, you are certainly well-positioned to make a lot of money. Here I think our model is more to be a little bit lower on the risk side and then accepting a little bit lower margins. We believe that overall it will provide us with better risk-adjusted returns when you measure the capital that is needed. Certainly the owners, the normal shipping owners and product tankers will also be making a lot of money now.
Thank you very much, Martin, for this presentation. Have a very good day. Thank you everybody for participating. It was a pleasure to have you and all your questions. Thank you very much.
Thank you for listening. Thank you.