Earnings Call: H2 2018

Feb 28, 2019

Welcome to the Day's Pacific Basin twenty eighteen Annual Results Announcement Call. I am pleased to present Chairman, David Turnbull. Mr. Turnbull, please begin. Thank you. Welcome, ladies and gentlemen, and thank you for attending our twenty eighteen Annual Results Conference Call and Live Webcast. My name is David Turnbull, Chairman of the company, and I'm joined by our CEO, on my left, Matt Spoegland and on my far left, our CFO, Peter Schulz. We are pleased to report that the company delivered a strong performance in 2018. The company generated significantly larger operating cash flows and our strongest earnings since 2010. In view of our return to a meaningful level of profitability, the Board is recommending a final dividend of 3.7 per share. And combined with the HKD 2.5 interim dividend, which was paid in August, this represents half of our net profit for the full year, which is consistent with our stated dividend policy. Despite a weaker than expected start to 2019, the long term fundamentals for our minor bulk segment look encouraging. And while we are bracing ourselves for increased freight market volatility in this year, we have shown before that Pacific Basin has what it takes to navigate such turbulence and do it adeptly. Mats will now present our 2018 results, and we will take and Peter will follow with a review of our financials, and we will take questions thereafter. So over to you, Mats. Thank you, David. So please turn to Slide two. We made a much improved net profit of $72,300,000 in 2018 and an EBITDA of about $216,000,000 The freight market strengthened again in 2018, which combined with our larger owned fleet, high laden utilization, continued TCE outperformance and competitive cost structure enabled us to record these much improved earnings. We continued to maintain good control of our owned vessel operating expenses, which were kept substantially flat at a very competitive $3,850 per day. We acquired seven modern vessels during the year, including four funded 50% by issuing shares while selling one older vessel. These transactions have increased our own fleet to 111 ships on the water at the January and grown the proportion of our own ships, especially in the Supramax segment. Two of the seven vessels purchased and one sold during the period are scheduled to deliver by the March 2019. We also closed competitively priced revolving credit and bilateral term loan facilities amounting to $365,000,000 And Peter will tell you more about these shortly. In 2018, Pacific Basin won the Dry Bulk Operator of the Year at the Lloyd's List Global Awards, and we won the Customer Care Award at the International Bulk Journal IBJ Awards. These awards specifically acknowledge our commitment to quality operations and our commitment to placing customers at the focal point of our business. Slide three. Driven by strong growth in minor bulk demand against a muted increase in global Handysize and Supramax capacity, 2018 Handysize and Supramax spot market rates continues to recover from the cyclical low in 2016. Our Handysize and Supramax net daily TCE earnings of $10,060 and $12,190 per day increased 2127% year on year and outperformed the Baltic Handysize and Baltic Supramax spot market indexes by 2212%, respectively. As at mid February, we had covered 44% of our Handysize days for 2019 at about nine thousand three hundred and seventy and sixty 3% of our Supramax days at about 10,570 per day net. Slide four. The blue bars in the graph represent our average quarterly TCE earnings against average quarterly spot market earnings. Our outperformance increased during the year both on Handysize and Supramax. And our fourth quarter TCE earnings were our highest since the '14. Please turn to Slide five. 2019 has started weaker than the last two years with a more pronounced Chinese New Year dip compounded by The U. S.-China trade conflict, Chinese restrictions on coal imports and recent iron ore infrastructure disruptions in Brazil that undermined sentiment further. However, as the graphs for 2019 clearly shows, the seasonal recovery is now firmly underway. Slide six. Despite disruptions to some U. S.-China trade, minor bulk ton mile demand increased by 5.3% in 2018. In contrast, total drybulk demand growth, including both the minor and major bulks, slowed to 2.9% in 2018 due to stagnant trade in grain and iron ore. In 2019, we expect continued solid growth in minor bulk demand, and we expect grain to bounce back to positive growth again. A trade deal between The United States and China could provide the market with a further boost, but we must not ignore the possibility that a protracted trade conflict could further undermine global GDP growth and consequently overall trade and drybulk demand. Slide seven. As expected, due to the declining order book, newbuilding deliveries in 2018 reduced to about 28,000,000 deadweight tons or 3.3% of existing drybulk capacity, the lowest level since 1992. However, scrapping reduced to almost zero due to the much improved freight market conditions, meaning that the overall fleet growth of 2.9% was fairly stable compared to 2017. After accounting for estimated delivery shortfalls, Clarkson estimates actual deliveries of 3.8% in 2019 with scrapping remaining low at less than 1% given an expected net increase in drybulk capacity of around 3%. It's important to remember that scrapping cannot go any lower than today's levels, and there is potential for scrapping to increase due to the growing number of old vessels and the increasing burden of environmental regulation. The supply fundamentals in our Handysize and Supramax segments look more favorable. And as you can see, the line in the right graph shows the net fleet growth is on a steadily reducing trajectory from 5.7% net fleet growth in 2015 to an estimate of almost zero for 2020. On Slide eight, we contrast in further detail both the order book and age profile of the smaller ships with the larger vessels. Handysize benefits from the smallest order book and the highest percentage of older ships, pointing to a better balance between new deliveries and scrapping going forward. While for Capesize and larger, the situation is the reverse. Slide nine provides a quick update on environmental regulatory changes. There are three new regulations that impact our industry. The first requires the installation of ballast water treatment systems. 14 of our owned vessels have already been fitted with ballast water treatment systems, and we have arranged to retrofit the balanced 97 of our own ships with a system based on filtration and electrocatalysis by the 2022. The second new regulation is the IMO's global 0.5% sulfur limit, which takes effect on first January twenty twenty. Ship owners will have to comply either by using more expensive low sulfur fuel or by continuing to burn heavy fuel oil in combination with installing exhaust gas cleaning systems or scrubbers. We expect the majority of the global drybulk fleet, especially smaller vessels such as our Handysize ships, will comply by using low sulfur fuel. This should have a positive effect on the supply demand balance as higher fuel costs encourage ship operators to slow down. However, some owners of larger vessels with higher fuel consumption, including some Supramaxes, are installing scrubbers to take advantage of the expected lower cost of heavy fuel oil. As we cannot risk being competitively disadvantaged, we are well prepared and have arrangements in place with repair yards and scrubber makers to install scrubbers on our owned Supramax vessels. These arrangements include fitting and testing scrubbers on Supras to gain experience early and to evaluate the equipment both technically and operationally. Thirdly, in April 2018, the IMO announced an ambitious strategy to cut total greenhouse gas emissions from shipping by at least 50% by 2050 compared to 2008 and improve average CO2 efficiency by at least 40 by 2030 and seventy percent by 02/1950. There is much uncertainty about how the market will eventually comply with these targets and the legislations that will, in due course, be implemented to achieve them. The easiest first step to decrease carbon emissions is to reduce speed. But our view is that these new IMO targets will also lead to the development of new fuels, engine technology and vessel designs that are not available or practical today. We believe the IMO's greenhouse gas reduction targets and eventual regulations will discourage new ship ordering in the short and medium term until new technologies and ship designs become available. We do expect all these major new environmental regulations to be positive for the supply demand balance and benefit larger, stronger companies with high quality fleets that are better positioned to adapt and cope both practically and financially with compliance. In Slide 10, we show Clarkson's yearly demand and supply levels for the overall drybulk market in the chart on the left. Ton mile demand growth of 2.9% was evenly matched by the net supply growth in 2018. And for 2019, demand is estimated to grow slightly slower than supply. Again, this is mainly due to weak iron ore demand. On the right are two graphs showing the same demand and supply data but separated out for the minor bulk and major bulk segments. As you can see, it looks more favorable for the smaller segments with demand growing significantly more than supply. Notwithstanding the weaker start to 2019 compared to last year, we have seen a recovery in minor bulk freight rates since Chinese New Year, whereas the Capesize market has continued to struggle. Please bear in mind, however, that other factors can have a significant influence on market freight rates such as bunker fuel prices and ship operating speeds, drydocking off hire to comply with new regulations, port congestion, market sentiment and other factors. Slide 11 shows that the improved freight market conditions supported vessel values in 2018. The large gap between newbuilding and secondhand prices and uncertainty over future ship designs continue to discourage new ship ordering, and we still see upside in secondhand vessel values. Hence, we will continue to look opportunistically at good quality secondhand ship acquisitions as prices are still historically attractive. I now hand you over to Peter, who will present the financials, and I will be back afterwards with a wrap up. Peter? Thank you very much, Matt, and good afternoon, ladies and gentlemen. Please turn to Slide 13. The group's underlying profit grew to $72,000,000 in 2018 compared to $2,200,000 in 2017 and EBITDA increased to $215,800,000 Owned vessel cost increased in absolute dollars during the year as we added more owned vessels to our fleet but reduced slightly on a dollar per day basis. G and A increased by £5,400,000 reflecting increasing staffing costs. The profit attributable to shareholders of GBP 72,300,000.0 was higher than our underlying profit due to a GBP 12,700,000.0 income from the write back of onerous contract provisions. We decided to write back the remaining provision in light of improving long term market fundamentals. This write back was largely offset by an £11,700,000 mark to market loss on our unrealized bunker swaps due to falling bunker prices in late twenty eighteen. Both of these are noncash items. As David has said, the Board recommends a final dividend of HKD 3.7 per share, which combined with the interim dividend gives full year dividends of HKD 6.2. This represents half of our net profit for the full year consistent with our dividend policy. Now please turn to Slide 14. Our Handysize revenue days decreased by 6%, but our TCE earnings improved by 21% to $10,060 per day outperforming the market by 22% and resulting in a Handysize contribution of $85,500,000 Our Supramax revenue days decreased 13%, but our TCE earnings improved by 27% to US12190 dollars per day resulting in a Supramax contribution of $42,100,000 The revenue day reduction reflects an increase in our own fleet offset by fewer primarily short term chartered in Supramax ships mainly due to lower Chinese steel export volumes. The post Panamax contribution remained stable as the two vessels in this segment are on fixed rate long term charter out contracts. Now please turn to Slide 15. Here, you can see our Handysize owned vessel costs were brought down to $7,410 per day, supported mainly by reductions in finance costs and depreciation. Our cost of inward chartered handysize ship increased to $9,440 per day as the freight market improved. The breakout table shows our chartered vessels daily cost split between short term, long term and index charters. On Slide 16, you see the same information for Supramaxes. Our acquisition of Supramax vessels increased our owned Supramax vessel days by 21% to nine thousand four hundred and twenty days and reduced our owned vessel daily cost by $120 mainly due to lower finance costs. Our cost of inward chartered Supramax ship increased to $11,950 per day, again reflecting the improvement in the freight market. On Slide 17, we aim to illustrate how our earnings move in relation to changes in freight rates. The chart sets out our twenty eighteen Handysize and Supramax TCEs per day compared to the all in cost per day depending on whether a vessel was owned or chartered in on a long term or short term basis. The daily costs seen here are inclusive of estimated G and A costs per day. For 2018, we divide our G and A cost between owned vessels at $950 per day and chartered in ships at $540 per day. As mentioned earlier, the blended G and A per day across our entire owned and chartered in fleet is $740 per day. Our owned and long term chartered in vessels have largely fixed costs and an increase or decrease in achieved freight rates will directly impact the underlying profit. We say that for each 1,000 change in daily TCE, the underlying profit and operating cash flow of the group will change between CHF35 million and CHF40 million, taking into account that we typically have 20% to 25% long term forward cargo cover at any point in time. If you're trying to estimate our underlying profit for 2019, however, based on changes in TCE per day, it is key to remember that our reported 2018 long term charter in rates were positively affected by a total $16,100,000 release of contract provisions, which will not be available in 2019. Onerous contract provisions are noncash items excluded from our EBITDA calculations, and so our EBITDA will not be impacted. As mentioned earlier, our remaining onerous contract provisions were fully written back at the 2018. Our short term and index vessels are largely variable cost, which depend on the freight market level when the charter was entered into. We use short term ships to either support our core cargo business where using an owned or long term vessel is suboptimal or to make money from pure operating positions. There is not a direct correlation between the margin on these ships and the level of the freight market. Often, have seen margins increase in falling markets and vice versa. Hence, for the purpose of this analysis, we do not assume any relevant sensitivity in this business from movements in the freight market. Now please turn to Slide 18. At the year end, we had vessel and other fixed assets of $1,800,000,000 consisting of 82 Handysize vessels with an average book value of £14,600,000 and an average age of ten years and 27 Supramax vessels with an average book value of £21,300,000 and an average age of six years. Our vessels were financed by £961,000,000 of interest bearing liabilities. Cash and deposits stood at £342,000,000 giving a net borrowings position of £619,000,000 At the end of the year, our net borrowings were 34% of the net book value of our owned vessels, which is a slight reduction on 2017. Now please turn to Slide 19. In June 2018, we refinanced a number of smaller bilateral facilities and took the opportunity to leverage our then unmortgaged ships with a GBP $325,000,000 revolving credit facility. The seven year reducing revolver has an eleven year profile and a margin over LIBOR of 1.5%. Towards the end of the year, we extended another bilateral facility by $40,000,000 on the same attractive terms as the revolver. These initiatives significantly extend our overall repayment profile. They provided us with increased flexibility and lowered our already industry leading cost of funding. With these refinancings, net of scheduled amortization, we increased our borrowings by $76,000,000 CapEx of £128,000,000 during the year included cash payments for acquired vessels as well as regular maintenance CapEx, mainly routine dry dockings. A total of five vessels were added to our fleet in 2018, and we docked some 33 vessels. Thanks to our operating cash flow of $190,000,000 and these refinancings, our cash position increased by 97,000,000 to GBP $342,000,000 during the year despite investing significantly in growing our own fleet whilst reinstating dividends. In July, the holders of our convertible bond will have the option to put the bond back to the company at 100% of its principal amount of $125,000,000 We have sufficient liquidity to fully pay back the bonds should the bondholders exercise their put option. In addition to our existing cash balances, we have eight unmortgaged ships with a total market value of about £147,000,000 I now hand you back to Mats for his wrap up. Thank you, Peter. Slide 21. We recap our business model on this slide. This is a strong platform that continues to deliver a 90% plus laden versus ballast ratio and a premium over index rate earnings. I will not go into all detail in this today, but will just emphasize that it takes all the components of our business model listed to the left in this slide to deliver the results that we deliver. Slide 22. It is not only on a TCE level that we are competitive. Our vessel operating expenses is well controlled at $3,850 per day, driven by the scale benefits and uniformity of our fleet and our sector leading in house technical management team. Our general and administrative G and A overheads average $740 per ship per day spread across our total fleet of both owned and chartered in ships. We achieved this competitive G and A primarily through a lot of hard work on our cost structure, scale benefits, efficient systems and our focus back to only our core business. Our access to capital and cost of capital also represent a significant advantage as our fleet is financed through long term secured facilities at the most competitive cost in our industry and because we focus on primarily good quality secondhand Japanese built ships rather than newbuildings. On Slide 23, we share with you a summary of our key strategic priorities for medium to longer term. We will maintain our business model as a fully integrated ship owner and operator with a strong focus on safety, cargo and customers with an office network that keeps us close to customers all around the world. We will continue to grow our owned fleet with quality secondhand acquisitions and opportunistically trading up smaller, older ships to larger, younger ships. We're still avoiding contracting newbuildings due to their high price, low return and because of the uncertainty over new environmental regulations and their impact on future vessel designs. We will continue to reduce the number of ships we take in on long term charters in, replacing them with own ships and short and medium term chartered in ships. A very important task is to continue to prepare thoroughly for IMO twenty twenty, both technically, operationally, financially and commercially. Last but not least, we will keep our balance sheet strong. Our healthy cash and net gearing positions enhance our ability to take advantage of opportunities to grow our business and attract cargo as a strong partner. Slide twenty four, wrapping up. We have worked hard over several years to streamline and focus the company and to grow our core business. With our outperforming business model, including experienced staff and very importantly, a much larger owned fleet with competitive cost structure, we are well positioned for the future. We expect to see increased volatility in 2019, influenced by uncertainty about the trade conflict and slower economic growth, but also by compliance preparations for the 2020 sulfur cap leading to tighter supply. The demand and supply fundamentals for the years ahead look favorable for our segments. Thank you very much for joining us today, and thank you for your continued support. David, over to you. Thank you, Mats, and thank you, Peter. We are very happy to answer any questions you may have. So the lines will now be open. We will now begin our question and answer session. Please press star one on your telephone keypad and you will enter a queue. After you are announced, please ask your question. If you find that your question has been answered before it is your turn to speak, please press the pound or hash key to cancel the question. Again, please press star one if you have any questions. Your first question comes from the line of Eric from UBS. Good evening, gentlemen. Eric Lin from UBS. I've got two questions. The first one is on the broader market in relation to an earlier comment expecting a seasonal recovery. So can you elaborate a bit more? I think particularly in terms of what's been described there, what are you expecting, what are you seeing in the market at the moment. I think there are concerns about this recovery could be weaker than the last two years. I mean, apparently, like the past month was so eventful. So any color could help us to get some conviction on the recovery would help. So that's my first question. My second question is more sort of accounting. How will the adoption of the IFRS 16 on leases affect your financials in 2019? Can you help me to quantify that? Two questions for me. Great. Thank you. So regarding the first question on the seasonal recovery, what will drive that? Well, we see that coming primarily from the increased activity after Chinese New Year, as is usual in The Pacific. But also, the South American grain season is what is typically driving the market back up. And that we're getting closer to the start of that as we get into late March and into April. The grain from Brazil and Argentina is starting to come out, and that is what typically drive the market up, and we expect that to happen this year as well. The other factor, of course, which is special this year is the trade war uncertainty. And a resolution to the trade conflict could, of course, mean a welcome boost to sentiment. We do expect also some soybean moving from The U. S. To China. That is one of the reasons for why we saw the deeper than normal dip, right, that the soybean did not move as they normally do during the fourth quarter from The U. S. To China. So I would say these are the three factors that will drive the seasonal recovery. And regarding the accounting question, Peter? Yes. So we have concluded our assessment on the implementation of 16. So this means, for you who don't know intimately about these accounting rules, that we will have to capitalize all our long term chartered in leases. We will recategorize them from operating leases to on the balance sheet. So this also means that only leases longer than twelve months at the January this year will be capitalized. We will also not capitalize the entire time charter cost, but we will split the cost in a lease component and a non lease component consisting of service costs, etcetera. So with that, the impact on our balance sheet and P and L is quite limited. If you were to add the lease liability on the balance sheet to our current net debt and calculate the net debt to net book value, the increase would only be a few percentage points. So these are not big changes to our balance sheet. On the P and L side, there will be no major change to the P and L as cost will basically move from chartered in cost today to interest and depreciation on these assets and liabilities. And the impact is also fairly small. So the impact for us is not going to be that big. It's worth mentioning, of course, that from a pure EBITA perspective, we will be moving the costs from operating costs down to interest and amortization. So technically, the EBITA will increase quite a bit, but we will most likely disclose EBITDA before and after this change so that investors and analysts can easily compare the movements in EBITDA. So Eric, the answer is the impact is not going to be that material. And you'll see the first view on this in our interim statements at the July. I see. May I follow-up on the first question, back on the market. Matt, you mentioned about a couple of factors. If I have to compare these drivers versus the same time last year, what do you think? Is it stronger than last year or weaker or probably still too early to tell? I would say that the uncertainty is bigger this year because of the trade war impact. These things almost tip from looking like a resolution to being tougher overnight. So more uncertainty this year. I think there's a chance to have a and if you look at the graph there, right, you see that the recovery is quite is coming back quickly up, right? We do expect more volatility this year. If we're lucky, we may get a period when we have strong grain exports both from The U. S. And South America at the same time. We didn't have any grain growth in the overall market last year due to the trade wars. And these beans, a lot of them are still in storage in The U. S. So we could get a period of stronger than normal. So last year was a more typical year. This year, a bit more uncertain, I would say. And again, you're coming into the period when the IMO preparations will start to hopefully tighten supply a bit later in the year and into 2020. So that is a change for the better, right, where we think that the IMO things will tighten supply a bit. Can we have another Your next question comes from the line of Paraj Joyn from HSBC. Please ask your question. Thank you and thanks gentlemen for the presentation. I'm Parash Jain from HSBC. I probably have three or four questions. Some of them have been addressed in your earlier response. First, talking about IMO 2020 Can I ask you to do your questions one at a time and we will give the answer question by question? Okay. So my first question is with respect to where do we spend in terms of our commitment with respect to installing scrubbers on some of the vessels that you mentioned earlier? And is there a CapEx number in mind that you have allocated for installation of a scrubber into some of your Supramax going into 2019, 2020? That's my first question. Yes. So on scrubbers, right, we are primarily a non scrubber complying company, right? Because for the Handysize, which is by far our biggest segment, we will go with low sulfur fuel. For the Supras, think it's also important to remember, right, that we typically have 80 or so Supras on the water. We only own 28, right? So the chartered in ships will not have scrubbers. So it's not a major financial thing for us with scrubbers even if we were to go for it on most of the Supras. We do not want to lead the trend towards scrubbers, as you know, because we much prefer low sulfur fuel. We would have preferred a heavy fuel oil ban. The benefit with low sulfur fuel is that it slows down the fleet, right? It reduces emissions. It reduces CO2 emissions, And it's good for the market. So we much prefer everybody to go for low sulfur fuel. But as we have stated, right, some of our competitors are installing scrubbers, and we have to be well prepared. And we have to play with the rules that are set. So we have made arrangements with both makers and repair yards to install on our Supras. We are fitting and testing on some Supras. But there's a lot of moving parts here, as you know, primarily the fuel price spread. There's not even a liquid forward market yet for 0.5% fuel. So a lot of uncertainties. And how will that forward fuel price spread develop? So we will see. We are well prepared. We are gauging the situation very closely. But we do not want to lead the trend. And the more we talk about scrubbers, the more we push others to go in the same direction. And if installs scrubbers, right, the benefit is not there, and the freight market will revert to be set by HFO. So kind of bear with us, and we apologize for being maybe a little bit coy on the exact details. We do not benefit from talking about the exact situation, and we will see how it goes. And we are not disclosing the exact status because it's kind of a lot of moving parts there. But trust us, we're looking at it very closely, and we will do what is best for the company and our shareholders. Fair enough. That's clear. My second question is with respect to The U. S.-China trade tension and perhaps the resolution in the coming weeks. I appreciate that it will certainly boost the sentiment. But can you help us understand, I mean, soybean is pretty much well discussed and understood, but will it lead to increase in the import of wheat or coal or other grains? How seeing are that trend? Should China agree to import billions of dollars from U. S. As a part of this trade resolution? And would that be long thumb, all positive for the sector? I think as you point out, right, I mean, the biggest factor is sentiment and the biggest factor is certainty. When things are so uncertain as they are now, in general, people hold off rather than proceed with plans and projects and contracts, etcetera. So I think the sentiment factor will be substantial. As regards real hands on effect, it is the soybean that is the biggest factor, but it does also affect commodities like log exports from The U. S. These log exporters have been struggling big time, not being able to export to The U. S. But that trade is has been shifting a bit more, right, with this moving China has taken logs from New Zealand primarily instead. It also affects cement, but we haven't had that big of an impact. So it is soybean that is by far the biggest impact. China has enough corn domestically, etcetera, and it is soybean that is the big import factor from The U. S. And that will be very positive if we do get a resolution. And thoughts on coal, the coal that China currently imports from Indonesia or for that matter Australia, do you see that Indonesian coal can possibly be assisted to bring it from U. S. And that probably will be couple of times positive ton mile? There's been some positive ton mile effects on coal, primarily a lot of coal out of Colombia, etcetera, and also some from The U. S. But I think the biggest thing going on, on coal right now, right, is the import restrictions into China in Dalian from Australia. And that's probably also a bit trade war linked with the things going on there. But it is not as big. It is regional, and we doubt that, that will be going on for very long. JACQUES Fair enough. And my third and perhaps last question, perhaps for Peter. Peter, going on to Slide 17, when we say that the $16,000,000 reversal will not be available in 2019, are we understanding it correctly that all else being equal, €2,000,000 will reduce by €16,000,000 going into 2019? Can say that. Can I say understanding? You can say that all else equal. Our results in 2018 were flattered by this release, right? It's important to separate the release from the write back. These are obviously the same provision, but they're two slightly different things. Note that EBITDA is not affected, right? This is a noncash. You remember, this stems from the $100,000,000 something provision made in 2014 for these long term funds. Yes. No, no, I understand. Can we have another could we have another thank you very much indeed for your questions. But could we have another question from another party, please? Your next question comes from the line of Sally MacDonald from Marlborough. Please ask your question. Good afternoon, everybody, and thank you very much indeed for a super set of results, and thank you for the return to that dividend, which is much appreciated by your shareholders. I wonder if I can ask you to elaborate a little bit on the competitive environment, Steve. I know I don't mean to think in terms of the numbers of vessels and supply and demand out there. I mean, in terms of the actions that you're seeing your competitors have taken, how aggressive are people in the client environment? And are you finding that other people are changing their disposition between chartered and owned vessels? I struggle a little bit with hearing your question there, but you're asking about how our competitors are acting? Yes, please. I want to understand the competitive environment and and how aggressive it is at the moment and how other people are changing their disposition between owned and chartered Okay. I would say that we have a significantly more pronounced strategic shift that we have been the main change of the company in recent years, right, is that where we have shifted from having a significantly smaller owned fleet to a significantly larger. We have not seen that really amongst our main competitors where they have had maybe a more stagnant profile of the mix between owned and shorted. Some of our competitors is even going to kind of an asset light model where they say that they are only going to focus on operating and use other people's ships. We much prefer our model where we are both a big owner and a big operator. We think that, that is the far superior model, and we are in house managing our ships, and we can have a customer offering that is much stronger than a company that is using other people's ships and other people's crews and other people's captains and ten, twenty different owners have ten, twenty different safety systems on board, etcetera. We have now a much larger fixed vessel owned fleet, and we think that is a big competitive advantage as we have moved into profitable territory, and that's where we get most of our leverage from. Can we have another question? Yes, sir. Your next question comes from the line of Kelvin Law from Daiwa. Please ask your question. Hello. This is Kelvin from Daiwa. Thanks for taking my questions. Just two brief questions on the IMO twenty twenty requirement. I just want to know how much can you save for actually, can how much can you save from the slow steaming? Because so far, know that the sensors are already operating in a relatively slow speed because we had a slow speed many, many years ago. So I just want to know how much incremental cost you can see from that. That's just a rough number or percentage. Second is that We'll just take we'll take one question first. Okay. Please, All right. So the effect of the IMO 2020 is maybe not so much a cost saving but a positive effect on the supply demand balance. So if you can think about it like this, right, that today's speeds is maybe on average 11.5 knots in our segments. If the fuel price goes up with 200 or $300 per day, maybe as a result of the IMO twenty twenty sulfur rules, that means a significantly lower optimal speed. But that is not possible to proceed at for the long term because every ship in the world is used. So what the effect a little bit longer term that this has is that it's pushing up freight rates. So what will happen is that ships will start to slow steam because of the higher fuel price. But assuming that demand is the same, the fleet cannot slow down. So the effect that it has is that it's pushing up freight rates to a new equilibrium where the optimal speed will be the same speed, but you have a higher freight rates. And I'm happy to speak offline maybe if you if I can explain further to you. But it's not so much a cost saving benefit of the slower speed. It is a tighter supply. It's reducing supply, and that is pushing up freight rates. Okay. My second question is for the scrubber installation. Maybe you can give some guidance. What do you expect, for example, the installation for your supermax will be, I think, breakeven or justify on the cost. How long does it take for the payback? So the payback period very much depends on what the fuel price spread will be. And since we don't even have a liquid forward market yet for 0.5% fuel, it is very uncertain. I would say with the current forward curve and a lot of estimates, you may be looking at a three to four year payback, but a lot of uncertainties in that, including availability of heavy fuel oil and primarily the fuel price spread and how long that will go on for and how long you will have this benefit. And also, as we mentioned before, how many other peoples are going for scrubbers, right? So a lot of uncertainty there. Okay. Thank you. That's all my questions. Thank you. Your next question comes from the line of Andrew Lee from Jefferies. Please ask your question. Yes. Hi. Good morning all. Sorry, good evening, Carl. First question I have is, you look at spot rates, supermax rates have actually outperformed the handy size from the year to date laws. What's been driving that? And do you think that the Handysize will catch up? Thank you, Andrew. It's very typical, right, that more volatility on the bigger Supramax segment. So yes, we do expect that Handysize will follow, but it typically lags a little bit in an upturn. And it's the other way around in a downturn, right, where Supra goes down quicker. So a bit less volatility in Handysize, and this is nothing unusual. And you should expect Handysize to catch up and follow with a little bit of a lag. Okay. Second question is given where the rates are, which is quite weak at this time, on the expectation that rates will potentially rebound, what are your customers saying to you? Are they trying to lock in more long term contracts at this price? And obviously, you're saying it's no, right? So I just want to get a sense of what your customers are trying to do with the rate at this level. We saw quite a lot of activity with cargo contracts late last year. But it's also impacted by the IMO 2020, and a lot of customers are waiting to see. And again, the forward curve for 0.5%, where will it end up? What will the price difference be? And a lot of people are waiting. Unprecedented uncertainty due to the trade wars. During this very bottom of the market, we were down to $4,000 $5,000 per day. We would not be interested in doing a cargo contract at that level anyway, right? So not a lot of cargo contract talk during this Chinese New Year period. We had a follow-up question from the line of Sarah McDonald from Marnborough. I'm really sorry to raise this ghastly subject. But is Brexit having any impact on the market? No. Excellent. Thank you. Yet. No, I mean, it doesn't really, right? I mean, we do not see any significant impact of Brexit either way. So no. Thank you. Next question? We will go for the online question. What is the your company future strategy? I think on strategy, we laid that out in quite some detail on specifically Slide 23. So rather than to repeat all of that again, maybe just refer to Slide 23, right? Business model, base case remains we're going to be both an integrated owner and an operator. We're going to continue to buy ships. Maybe additional color I can give you is that you should expect us to buy maybe a bit more Supra than Handy, but that's because we our number of owned Supras is still small relative to the total Supramax activity, right? So expect the Supra fleet to grow a bit more than the Handy. But otherwise, I think you have the initiatives on Slide 23. The next question. Given the discount on NAV on which the shares is trading, have shares buybacks been discussed? It seems a higher returning investment than investing in secondhand ships at this moment. We have no current plans to buy back shares. We believe that buying vessels in the secondhand market is a better returning investment than the share buybacks. The next question. What is the prospect about the dry bulk market in 2019? Because of very low net TCE in these two months, will it be possible, not profitable for us in first half twenty nineteen? Yes, too early to say, right? And it started weak, but we expect more volatility, and we're not giving forecast. And it's too early to say where the first half will end up. There's one more from online. Can you discuss the €11,700,000 derivative loss on Page 13 and if it will have an impact in 2019 again? So this is a result of us entering into bunker swap contracts to basically lock in the bunker cost when we have long term COA contracts to ensure that we know what the TCE is in that contract. When we enter into these contracts, due to accounting rules, we will the realized part of the contract, we go straight into the P and L into our cost of goods sold. But the mark to market future potential profit or loss, we also have to take via the P and L. In our management accounts that you see in the announcement, we have that below underlying profit. So this is not is a noncash item. This is purely a reflection of changes in the forward market. And this moves up and down with bunker costs. The reason why we had a loss in 2018 was because the bunker cost, together with the oil price, fell quite drastically towards the 2018. Since then, the oil prices have come back up again, which means we will have a gain on this, at least for the time being, should we close our books today. So it moves with the markets. It's noncash, and it's simply something we have to show for the accounting rules. But it's not a realized loss or gain on our contracts. So to say how the impact what the impact will be in 2019 is very dependent on oil prices. If they go up, we will have a gain. If they go down, we will have a loss. But just to add to that, right, it's wrong to talk about profit or loss because you have the exactly offsetting positive effect in the cargo contracts, right? So we do this we lock in the bunker price when we have a fixed rate forward cargo contract. And we're not allowed accounting wise to book the offsetting profit on the cargo contract in this situation, but we have to book the mark to market loss on the derivative bunker contract. So don't worry about this. This is not speculating on oil. This is noncash. This is hedging and locking in TCE on a fixed rate cargo contract. Okay. One more question. On the phone? Yes, sir. We have a follow-up question from the line of Sally McDonald from Marlboro. Please ask your question. Hi. I wonder if could talk through for us, please, the outlook for port charges globally. Sorry. The outlook for? Port charges. Port charges. Wow. The outlook for port is not really that relevant. Voyage costs are added and part of the spot market, so to speak. They totally depend on which port you go to. And we work very hard on minimizing our port charges by block volume arrangements with agents, and we negotiate those very hard. But it's very, very important to have good turnaround in the ports. So you've got to have good agents that help you with quick into port, quick out of port good service while you're there. But as regards port costs and other voyage costs, they are totally individual on each voyage and kind of part of the spot market. You add them to the target TCE, and they get passed on to the customer, so to speak. So not very important to have low cost efficient port costs, but maybe not so relevant to analyze from a result standpoint. You. I think we'll The reason I'm asking sorry, reason I was asking is that there are a number of ports being built or being extended at the moment which are competing with the traditional entry points for quite a few countries around the Asian region. I wonder whether that has the potential to reduce your costs. Not so much. I mean, in general, we like low port charges, and we like competition among the ports because it lowers the transportation cost for our customer, right? But it doesn't have a direct bearing or impact on our results. Thank you. I think, therefore, we'll bring this matter to a close. I'd like to thank all of you who have attended. And of course, it's an uncertain world right now with many variable things, politics and economics. We'll do our best to steer our way through them. Thank you for attending and we will talk to you. See you next time. Thank you. Thank you very much. This concludes the conference call. Thank you all for attending.