Earnings Call: H1 2018

Jul 27, 2018

Welcome to today's Pacific Basin twenty eighteen Interim Results Announcement Call. I am pleased to present Chief Executive Officer, Max Berglund. For the first part of this call, all participants will be in listen only mode. And afterwards, there will be a question and answer session. Mr. Berglund, please begin. Thank you very much. Good afternoon, ladies and gentlemen, and welcome to Pacific Basin's twenty eighteen Interim Results Earnings Call. As mentioned, my name is Mats Berglund, CEO of Pacific Basin, and I'm joined by our CFO, Peter Schultz. I will start with an overview of our results and business activities before Peter talks you through the financials. We will then invite you to ask any questions. Please turn to Slide two for our interim results highlights. The minor bulk freight market strengthened again in the 2018, which combined with our continued outperformance and larger owned fleet with competitive cost structure enabled us to record much improved results year on year. We made a net profit of USD 30,800,000.0 compared to $12,000,000 net loss in the first half of last year. And our EBITDA improved 75% to $99,300,000 In view of the recovering market conditions and our return to a meaningful level of profitability, we are recommencing dividend payments. The Board has declared an interim dividend of $0.02 5 per share, in line with the dividend policy of paying out at least 50% of net profits, excluding disposal gains for the full year. As announced in May, we acquired a further five modern vessels, including four funded 50% by equity, which will grow our own fleet to 111 ships by January 2019. Having more than tripled our own fleet since 2012, we now own approximately 50% of the ships we typically operate overall. We continue to maintain good control of our owned vessel operating expenses, which were kept substantially flat at an average of $3,810 per day. In June, we closed a $325,000,000 seven year secured revolving credit facility, which significantly extends our overall amortization profile, further enhances our funding flexibility and reduces our already competitive owned vessel P and L breakeven levels. As at June 3038, we had cash and deposits of $317,000,000 and net borrowings of $657,000,000 which is 36% of the net book value of our owned vessels at the midyear. Despite ongoing trade tensions, we remain cautiously optimistic for a continued market recovery, although with some volatility along the way. Slide three. Our Handysize and Supramax net daily TCE earnings of 9,750 and $11,730 per day were up 2332% year on year and outperformed the Baltic Handysize and Supramax spot market indexes by 1911% respectively. As at the July 24, we had covered 54% of our Handysize days for the 2018 at $9,610 per day and 67% of our Supramax days at $11,010 per day net. Please turn to Slide five. Market rates in 2018 are so far following a similar seasonal pattern as the last two years with a short seasonal decline at the start of the year, recovery after Chinese New Year with a stronger March thereafter. But as you can see in the graphs, the solid year on year improvements continue. The Atlantic market is starting to show promising signs, particularly in the Supramax segment, as you can see on the graph to the right. Handysize and Supramax spot market rates averaged $8,200 and $10,560 per day net respectively in the 2018, representing 2432% improvements in average spot market earnings year on year and the strongest first half rates since 2014 and 2011, respectively. Slide six. Complete demand data for the 2018 is not yet available. So we show in this slide to the left Clarkson Research full year volume forecast by commodity. Clarksons estimates that overall drybulk ton mile demand grew in the first quarter, but slower compared to a year ago, mainly due to reduced Brazilian iron ore exports. However, key positive drivers in the first half included 34% increases in Brazilian export volumes and United States export sales of grain and other agricultural products, supported by record soybean volumes from Brazil and corn sales from The U. S. U. S. Coal exports also grew strongly to a five year high in April. Pacific demand benefited from increased trade in bauxite, nickel ore, copper concentrate, forestry products and other minor bugs in which we specialize. In spite of a seven percent growth in steel output to an all time high level, Chinese steel exports declined 14%, primarily due to strong domestic demand and high prices. Warm weather in China contributed to increased electricity generation, driving 9% year on year growth in coal imports in the first half. And Chinese imports on minor bugs grew 8%. This excludes bauxite and nickel ore for which data is not yet available, but indications are for strong growth also in nickel and bauxite, as you can see in the graph to the left. And Indonesia is back big time exporting large volumes of both bauxite and nickel. U. S.-related trade dispute actions to date impact only a small fraction of the trades in which Pacific Basin is engaged. Total U. S. Soybean exports to China in 2017 represented only about 0.6% of total drybulk seedborne trade. And commodity trading patterns tends to shift rather than cease as a result of trade tariffs. The trade conflict between The U. S. And its key trading partners might get resolved, but may also escalate. This uncertainty weakens sentiment, which could undermine trade and global trade war could impact global GDP and drybulk demand. China has recently increased stimulus measures to counteract a potential slowing in Chinese GDP. All things considered, we continue to believe that any negative impact the protectionistic actions have on the drybulk trade will be largely outweighed by positive drybulk supply fundamentals and continued global drybulk trade growth overall. For the full year, Clarkson Research estimates 3.4% growth in ton mile demand. Fundamentals are more favorable for our Handysize and Supramax segments with minor bulk ton mile demand estimated to expand by 4%. Please turn to Slide seven. As expected, due to the declining order book, newbuilding deliveries in the 2018 reduced to about 15,400,000 deadweight tons or 1.9% of existing drybulk capacity, the lowest level since 1988. Scrapping reduced to 0.3% of existing capacity due to the much improved freight market conditions. As a result, overall drybulk capacity grew 1.6% during the first half of the year. And note that newbuilding deliveries are typically significantly slower in the second half of the year. New ship ordering was limited with most new orders being for large bulk carriers. Handysize and Supramax new ship ordering is down to an historic low of around 1%. On Slide eight, you will see that total drybulk new ship deliveries in the 2018 fell short of the scheduled deliveries by 29% and by 39% in our combined Handysize and Supramax segments. Looking ahead, newbuilding deliveries are set to continue to shrink. Scheduled deliveries for this year are smaller than they were for last year, and we expect actual deliveries will be around 27,000,000 deadweight tons compared to 38,000,000 deadweight tons in 2017. In the right hand graph, you'll see that the combined Handysize and Supramax order book has reduced to 5.5%, the lowest level since the 1990s. And scheduled deliveries in our segments, this is before any shortfall, are 2.1% for 2019 and one point five percent for 2020 onwards, significantly smaller than for dry bulk overall. On Slide nine, 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 among the drybulk segments and more older ships, pointing to a better balance between new deliveries and scrapping going forward for the smaller ships. On Slide 10, while we are on the subject of the supply side, we would also like to touch on the new regulations. Following a comprehensive assessment of available ballast water treatment systems, we have committed to retrofit 50 of our owned vessels with a system based on filtration and electrocatalysis, and nine of our ships are now fitted with ballast water treatment systems. We are negotiating systems for our remaining 50 plus owned vessels and remained well positioned to complete implementation across our own fleet by 2023, one year ahead of IMO's mandatory schedule. The global 0.5% sulfur cap takes effect on first January twenty twenty, which owners can comply with by burning more expensive low sulfur fuel oil or by burning cheaper high sulfur fuel and installing exhaust gas cleaning systems, so called scrubbers. We lobbied for a mandate for everyone to burn low sulfur fuel as this would be an environmentally more effective solution and supporting a level playing field, lower speeds and lower emissions, including lower emissions for CO2. However, it appears there is now no scope to change the rules and some owners of larger vessels, including some Supramax owners, are planning to install scrubbers. We continue to assess both the low sulfur fuel and the scrubber options, but continue to believe that the vast majority of the dry bulk fleet, especially smaller ships like Handysize ships, will comply by using low sulfur fuel. On a new front, the IMO announced in April an ambitious strategy to cut total greenhouse gas emissions from shipping by at least 50% by 2050 compared to 02/2008, and improve average CO2 efficiency by at least 40% by 2000 and thirty and seventy percent by 02/1950. The easiest first step to decrease carbon emissions is by reducing speed. But we believe these new IMO targets will in due course lead to the accelerated development of new fuels, engine technology and vessel designs that are not offered or practical today. The uncertainty about these existing and coming regulations makes it very difficult to order new ships, and this helps to keep the supply side limited. We believe that combined, these regulations will over time encourage scrapping of poor quality ships and be positive for the supply demand balance and benefit larger, stronger companies with high quality fleets that are better positioned to adapt and to cope practically and financially with both compliance and new technology. In Slide 11, we show Clarksons yearly demand and supply levels combined in one chart. For the full year, and as mentioned in Slide six, Clarksons estimate 3.4% growth in ton mile demand for drybulk overall, which is well above the 2.5% expected net growth in global drybulk capacity. Again, fundamentals are relatively more favorable for our Handysize and Supramax segments with minor bulk ton mile demand estimated to expand by 4% this year against combined Handysize and Supramax net capacity growth of about 2%. Slide 12, the improved freight market conditions and more optimistic sentiment supported sale and purchase activity and increased vessel values in the year to date. Newbuilding prices have increased 7% over the period to $23,500,000 for a Handysize today. That's an average yard price by Clarkson. And in Japan, you would need to pay at least $25,000,000 for a Handysize ship newbuilding. Clarkson currently values a benchmark five year old handysize at $16,000,000 up 14% since the start of the year. Note that the value of a typical five year old ship is still nowhere near the price of a new building, which is typically the case in a strong market. Hence, we see still upside in secondhand values in parallel with a continued gradual freight market recovery. The large gap between newbuilding and secondhand prices, along with the uncertainty about new regulations, continues to discourage new ship ordering, which bodes well for the supply side demand balance in the longer term. I will be back shortly with a wrap up, but now hand you over to Peter, who will present the financials. Peter? Thank you very much. Mats, good afternoon, ladies and gentlemen. Please turn to Slide 14. The group's underlying profit improved to a positive GBP 28,000,000 in the 2018 compared to a loss of GBP 16,700,000.0 in the same period in 2017. The improvement in underlying profit was driven by better drybulk market rates, combined with our continued outperformance and larger owned fleet with competitive cost structure. Owned vessel costs increased in absolute dollars during the period as we added more owned vessels to our fleet, but continued to reduce on a dollar per ship day basis. Our G and A overheads increased due to an increase in our staffing overheads. Charter cost increased due to the increased cost of chartering in short term vessels in a rising market. The profit attributable to shareholders of 30,800,000.0 was higher than our underlying profits due to GBP 4,400,000.0 of noncash mark to market income, mainly on our bunker swaps, offset by a $1,600,000 write off of loan arrangement fees relating to refinanced loans upon closing of our new seven year revolving credit facility. Please turn to Slide 15. We generated a Handysize contribution of 38,400,000.0, driven by a 23% improvement in TCE earnings to $9,750 per day. We generated a Supramax contribution of $15,800,000 driven by a larger owned fleet and a 32% improvement in TCE earnings to $11,730 per day. This increased contribution was despite a 10% year on year decrease in our Supramax revenue days because of fewer short term chartered 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. On Slide 16, you can see our Handysize owned vessel cost reduced to $7,380 per day, benefiting mainly from a reduction in finance costs, but also in operating expenses and depreciation. Our cost of inward chartered handysize ships increased to $9,170 per day as the charter market strengthened. The breakout table shows our chartered vessels' daily cost split between long term, short term and index charters. Our overall G and A overhead increased to $690 per ship per day due primarily to an increase in our staffing overhead spread across a smaller total fleet comprising fewer chartered in ships, partly offset by a larger owned fleet. On Slide 17, you see the story is similar for Supramax, where our owned vessel cost reduced to $8,090 per day, mainly due to a reduction in finance costs. Our cost of inward chartered Supramax ship increased to $11,740 per day, again, reflecting stronger charter rates in the improving freight market. Approximately $8,300 and $9,000 per day, respectively, including G and A overheads. This is a slight reduction. Pairing these levels to our TCE earnings actually achieved in the 2018, you can see that Handysize contributed about $1,400 per day. On Slide 19, at midyear, we had vessels and other fixed assets of over $1,800,000,000 and 26 Supramax vessels with an average book value of $21,900,000 and an average age of 6.5 at $317,000,000 giving a net borrowings position of $657,000,000 Our net gearing remained below 50%. Now please turn to Slide 20. In the 2018, the group in June, we closed a $325,000,000 seven year reducing revolving credit facility, secured a fresh capital on previously unmortgaged vessels at a very competitive interest cost of LIBOR plus 1.5%. This new facility significantly extends our overall amortization profile. It further enhances our funding flexibility and reduces our already competitive P and L breakeven levels. Including the effects of the refinancing, our borrowings increased by GBP 91,000,000 after we drew down net GBP 145,000,000 under our new committed loan facilities while making net repayments of GBP 54,000,000 of secured borrowing and revolving facilities. Our average interest rate is 3.8%. CapEx of GBP 78,000,000 during the period included cash payments for our five vessel acquisitions. We have further CapEx commitments in the 2018 of GBP 36,000,000, of which GBP 22,500,000.0 will be paid in shares and GBP 13,500,000.0 in cash. In 2019, our CapEx commitments of GBP 14,000,000 will be settled fully with shares. All our commitments relate to modern secondhand vessels, and we do not have any owned newbuildings on order. In addition to our cash balances of GBP $317,000,000, we will have six unmortgaged vessels with a total market value of about EUR 120,000,000. I now hand you back to Mats for his wrap up. Thank you, Peter. We recap our business model on Slide 22. This is a strong platform that continues to deliver a 90% plus laden versus ballast ratio and a premium over index earnings. I will not go through this in detail, but will just emphasize that it takes all the components of our business model listed to the left in this slide to deliver these results. As shown in Slide 23, 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're now well positioned for a recovering market. Based on our current fleet and commitments, and importantly, all other things being unchanged, including our G and A, the margin on our operating business, etcetera, a change of $1,000 per day in annual average TCE market rates would be expected to change our net results by about $35,000,000 to $40,000,000 per year. And finally, turn to Slide 24. To wrap up, the favorable outlook for widely spread global drybulk trade growth bodes well for demand. And supply is expected to be kept in check by the continued gap between newbuilding and secondhand prices and the uncertain impact of new regulations on ship designs, both of which caused many ship owners in our segments to refrain from ordering new ships. Clarkson Research estimates that ton mile demand for minor bulks this year will grow at double the pace of expansion of the combined Handysize and Supramax fleet. We continue to believe that any negative impact the ongoing trade conflict has on the drybulk trade will be largely outweighed by positive drybulk supply fundamentals and continued global drybulk trade growth overall. Hence, we remain cautiously optimistic for a continued market recovery in our segments, although with some volatility along the way. We see upside in secondhand vessel values and we'll continue to look at good quality secondhand ship acquisition opportunities as prices are still historically attractive, resulting in reasonable breakeven levels and shorter payback times. 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. Ladies and gentlemen, that concludes the results presentation. Lines will now be open for any questions you may have. And operator, I hand it back to you. Your first question comes from the line of Andrew Lee of Jefferies. Go ahead, please ask your question. Hi, guys. Thanks for taking the call and a good result. Scrubbing in the first half, as you mentioned, was actually quite low. Do you expect that to continue for the second half and into next year, mainly because rates will be high? Second question I have is, could you guide us a little bit in terms of your full year like revenue days? Will it be flat on a year on year basis? Or do you think it will be higher? Thanks. Thank you, Andrew. Will scrapping continue to be low? Yes, we believe so, given our market view, right? We do expect a continued market recovery. The medium term scrapping may well go up as we get into the deadline for these regulations, etcetera, and poor quality ships may choose to go for scrapping. But in the shorter term, we do expect scrapping to continue to be low. It's almost good news we feel, right, because scrapping can no longer shrink. It cannot go lower. So any continued demand outpacing supply will have to have an effect on rates, right? Because scrapping can no longer shrink. Scrapping serves as a bit of a cushion. That's the first thing that happens is that scrapping reduces so that limits the effect on the tightness of the market, and that can no longer happen. Regarding the guidance of full year number of days, we do not give any such guidance. The short term activity that we do is very opportunistic, as you know, so it's difficult We have reduced the short term supra days, as you can see there, mainly as a result of the lower Chinese steel exports. We mentioned in the presentation, right, that in spite of massive growth in Chinese steel output, they reduced their exports, right? But we have reduced our activity there as a result on that export side. So we can't give any detailed guidance on that. Focus on the larger owned fleet, we would recommend. Final question is, can you give us an update on the vessel speeds? Has that been increasing? Been kind of flat recently because freight rates have not changed that much, right? A little bit of summer weakness. But we are still at around 12 knots and the average world fleet, as far as we can see, a little bit lower than that. So no big change in the speed. There's still a little bit room for increase and definitely room for decrease as potentially as a result of the more expensive low sulfur fuel coming in the years ahead. Speeds can definitely reduce. Okay. Thanks. Thanks for your time. Thank you. Your next question comes from the line of Rahul Kapoor from Bloomberg Intelligence. Matt, Peter, congratulations. So just want to talk about we have low debt to equity, significant funding. You said you are cautiously optimistic on the market. And what is stopping you from kind of going into a negative expansion? As in what is stopping you guys back? As in if see you the market evolve pretty well over the next few years, what exactly is your thinking around that? I would say that we have aggressively expanded the fleet going from 34 ships in 2012 to now 111. So one reason is that we have expanded the owned fleet massively. Prices have also gone up, right? So we are looking at more acquisition opportunities. We say that, and we will continue to do that. We bought five ships in the first half. We bought ships during the later part of next year. It is more competitive out there today. More people are inspecting ships. What is critical for us is to continue to be extremely disciplined in the ships that we buy, right? So there's plenty of ships to buy out there, but they're not the right ships. So we are focusing heavily on ships that are equipped the way we want them of the designs and the specifications that we want. We focus almost exclusively on Japanese built ships. Every single owned Handysize ship, all of the 80 three-1s, every single one is equipped to carry logs, for example, right? Only onethree of the Handysize fleet is logs fitted. So that takes away twothree, so to speak, right? So we continue to be very disciplined. But we have bought a lot, and we're also making sure that we maintain a strong balance sheet that we can pay a dividend, that we have cushion to repay our CB should it be put to us, etcetera. We will continue to look at expansion. Sure. Just a follow-up on that, the Japanese quality or as in the Japanese built ships, right? We are hearing that the shipyard capacity is just not available for Japanese built ships. Can you throw some light on that, please? Yes. Japan tends to have longer order books. But our view on newbuildings is that this is not the right time to go for newbuildings because of the unprecedented uncertainty on regulation and the new regulations that will come. We fear that a new ship today, you will not get the twenty, twenty five years out of it that you need because of changed technology and changed regulation. And many others shares that view. And that's why we're seeing not too much newbuild ordering. And we are instead focusing on buying secondhand ships where we do see that we can get our money back during a much shorter time. So our focus is on existing ships on the water and not new build orders. Your next question comes from the line of Varun Ginodiya from JPMorgan. Congratulations on a good set of results. I have two questions. First question is, when I look at your future cover for both segments, Handysize and Supramax, I saw that your second half cover freight rates, they are lower than what you achieved in first half for both the segments. Is this kind of your view on the second half rate case that you expect them to be sequentially lower? I mean how should we read into that? And the second question is on trade war between U. S. And China, considering that it's becoming more of a base kind scenario right now. So if you can throw some color like how exposed back basin is to U. S.-China trade route of its total volumes? And do you see any impact if U. S. Ends up imposing tariffs on entire imports coming from China? Thank you. Yes, second half cover rates are slightly lower than first half actual. That's really a result of how the market has developed. There's a little bit of lag between spot rates and our earnings, right? So if you study our rate graphs there on, where is this, Slide five, you will see that the strength was in March and April, and those stronger earnings, come into the second quarter. What's in our cover is a lot of spot activity during the recent summer period, which has been a little bit weaker, and that makes the forward rates slightly lower. We've also proactively gone after too much cover because we do believe that rates will come up. And typically, the fourth quarter is the strong quarter of the year. The coverage is not that high still. We still have exposure for the fourth quarter, which is the typically the strongest part of the year, right? On the second question on trade wars. Still, the effect is very limited, right? The biggest commodity affected, as we mentioned before, is the soybean. And it's kind of yet to be seen what will happen because The U. S. Export volumes is really starting to pick up now towards the fourth quarter. So it will be interesting to see what happens. But rest assured that the players in this business is scrambling to readjust. And again, trades tends to shift. So you should expect maybe some soybean went earlier than otherwise. Some soybean from U. S. Will go to other buyers, including Europe and others. Southeast Asia and China is looking to buy from elsewhere. So we expect to see shifts in the trades rather than the trades stopping. Such shifts can even lead to longer distances overall at times if you disturb the natural flows. Again, we wouldn't say that this is positive, obviously, because the negative effect of the trade war is on sentiment, it is on uncertainty and people holding back a bit on long term plans. But we see very limited effects so far. It's a much bigger deal for container shipping than it is for dry bulk. We continue to see steel shipments. We continue to see cement shipments into The U. S, etcetera, and we haven't really seen any changes on that so far. Steel is moving in, including the tariff. U. S, I just saw some stats today. U. S. Output has not increased. It increased with 0.8% or something. Again, Chinese steel output is at, by far, all time high levels, right? So China is just massively producing steel and still reducing their exports, right? And that tells you how strong the domestic Chinese demand is. Same thing with cement, right? Cement a lot of cement production, but reduced cement exports from China. But again, we do recognize the potential effect of continued trade restriction and the effect that, that might have on global economy overall, but so far limited. And we believe that the big picture situation for our industry, I. E, a lot less supply, much fewer ships coming from the shipyards. And overall GDP growth is 3.9% or something, right? Even if that reduces to 3.7% or 3.6%, we still have more demand growth than supply growth in our view. And then we have these very interesting dynamics with the new regulations coming. So that's why we say that all things considered, we are cautiously optimistic, and we believe in a continued win for these fundamentals over the trade war, so to speak. Peter, something you want to add there on trade war effects? No, think you've covered it. Thank you. Just one follow-up on the first question. So 4Q is seasonally a strong quarter, but last year, we saw that freight rates came under pressure primarily because of China's two plus 26 policy during the winter months, which led to output cuts. Do you expect the same thing to pan out this year as well and we might not see a steeper trend that we normally see in 4Q that might not happen again? I don't think so. Again, we think that the fourth quarter will depend very much on what's happening to the Northern Hemisphere grain volumes and how that will pan out, right? The crop seems to be a bit early because of the very dry weather. It may drive some early maybe we'll talk a bit earlier. It's just very difficult to say. The most difficult thing to forecast about demand in China is the coal imports to China. And again, we've seen them increase recently. Chinese electricity generation have been high, and they haven't had much rain, warm weather and so on. So coal imports to China have been very good. But coal imports can be can reduce due to policy issues, as you mentioned. It can be affected by price, politics, etcetera. So that is the most difficult. But there's no indications at this point that we can see that will point to something like that. Your next question comes from the line of Joe Liu from Deutsche Bank. I have a question on funding. Given that you are looking for opportunities in the secondhand vessel market and you potentially also have a CB repayment in 2019, are you considering any sort of equity financing, either equity in itself or CDs at any time in the near future? Not in the near future. We have just as mentioned, we've just concluded quite a big refinancing, which provided us with another $135,000,000 of capital. So that's a pretty sizable budget buffer over the cash we already have for us to be able to be very flexible when it comes to acquiring good vessels, but also to be in a position that should the convertible be put back to us next year, which at the moment doesn't look likely, but that can, of course, change with our share price. If it should be put back to us, we are in a position to repay that fully in cash if we don't decide to refinance it. So we have quite a lot of buffer at the moment, Joel. There are currently no questions over the phone. Please go ahead. There is a question from Andy. Any plan for Pacific Basin to buy secondhand Ultramax bulk carriers? Yes, we are looking at both Handysize and Supramaxes. Ultramaxes are included in what we call Supramaxes. And you will note that many of the ships we have bought recently are Ultramaxes, 64,000 ton Tunisia ships. Again, we call them Supramaxes, but others call them Ultramaxes. We call the whole segment our Supramax segment. But yes, we are looking at Ultramax ships. We like them. Next question from Kiko. How would you forecast the future oil price, I guess, the question is? We basically do not cannot forecast the future oil price. We obviously look at the forward curve, etcetera. And in particular, we study that now for low sulfur fuel and for heavy fuel oil and look at the spread in between since that will impact the 2020 situation with the new regulation coming in. But our philosophy on our bunker cost, which is influenced by the oil price, is that we do not hedge the bunker price for our spot business because that business in itself very much influenced by and adjusted by the fuel price. We do, however, hedge the bunker cost against our fixed rate cargo contracts. So that is our way to manage the oil price and the bunker price. Next question from Kendi. Can you tell us more about how U. S.-China trade war impact your business at the second half year? I think we spoke about that, and there's not too much more we can add compared to what we just said, right? Again, there will be some impacts, but primarily, in our view, a shift in trade flows rather than trades stopping. And again, some trades will continue with the tariffs. That's also important to note, right? The U. S. Soybean price has dropped, for example, significantly, arguably making up for the tariff and same thing in some other commodities. So some commodity trades will continue like before, but with the trade tariff. Transportation cost continues to be a fairly low percentage of the total landed commodity. There's a question from Deepak. Is there a shift in approach to IMO twenty twenty low sulfur? You have now included a comment in the slides that you will explore scrubbers. Yes, it is, of course, our duty to be extremely well informed and have both options available to us because it depends on many uncertain things. And we must be extremely well prepared to comply with both methods. We believe that a vast majority of the Handysize of the drybulk fleet overall will go for low sulfur fuel and definitely the smaller sizes. But again, as mentioned, some Supramax owners are going for installing scrubbers, and we must be extremely well informed and have that option available to us as well. It depends on what the price will do for low sulfur fuel, what the price will do for heavy fuel oil and how the price of scrubbers develops, right? There are established scrubber manufacturers, but there's also new scrubber manufacturers popping up. And we must be extremely well informed and prepared for all eventualities there. But our view remains that we do not think that scrubbers is an environmentally very smart solution, and we much prefer low sulfur fuel. And that will mean a higher bunker price, which will mean lower speed, which will have a much greater environmental impact than a scrubber. And it will also contract the supply side of the supply demand equation. So it's got all the benefits. So that's what we're hoping for. But we obviously must be prepared to do what is best for our shareholders and take action potentially accordingly. So we'll not answer specifically on that more than how I guided you right there. So question from Max. Why Signed orders, I think. Oh, signed coverage less than the actual for the first half. The chartered ships didn't make profit in first half twenty eighteen. Yes, the shortage ships do make a contribution, but it's not that big. It's tough in a rising market to make money on the short term activity. Again, the short term activity primarily came down due to the lower Chinese steel export volumes, but also partly because of the fact that the market is going up and short period ships are priced high, and it's tough to make them worse work against a spot cargo. But we do expect a continued improvement in the market and that the fourth quarter will come in higher than the third quarter. That's the expectation, and it's not surprising to find that what we have in the book so far maybe being a bit lower than the actuals. If I may add to that, if the question relates to the Supramax cover last year at this time versus today, which has come from 33% to 19%, a part of that is because we now have a bigger owned Supramax fleet. And that means we have much more days committed. So even if we have similar cargo cover, the percentage comes down because the denominator is higher. Yes, that's the reason for the percent if it's the percentage cover you're asking. Your next question comes from the line of King Tan from Daiwa Capital. Ask your question. Hi, good evening, Matt. Peter, good results. Just two questions for me. One more follow-up questions. One is on the trade dispute. You mentioned, I guess, the trade dynamics will shift, and I can see that. Just wondering whether you've done any preliminary analysis in terms of what the net impact would be, for example, in soybeans, in steel. Second question is on the refinancing Congrats on the result. Just want to get more information in terms of, I guess, the key covenants in that facility and how that's changed, whether it's been sort of loosened or maybe a little bit more restrictive in some aspects? A bit more clarity on that would be great. Thanks. Yes. On trade dispute, it is extremely difficult to model what will happen and the net effects. But as regards to steel trade, for example, that trade has always been very fluid, and it changes a lot due to price changes. So it's not like an earth shattering change for the players there. People are shifting their sourcing from one country to another due to price developments all the time, so to speak. So I and but from what we can see so far, there is steel going into The U. S. From Turkey, from Italy, etcetera, also into the future with the tariff. As regards soybeans, very difficult to predict, as mentioned, right? But it's just logical that the price of U. S. Soybean have come down a lot. Other buyers will obviously look to buy these cheaper soybean. Since there's no tariff to these other countries, they will look to buy them instead of from Brazil. And China will do the reverse, etcetera. So there will be every effort to readjust. But the volume from U. S. To China is so big. It's kind of a big task to adjust for that. I mean, there's nothing I mean, you could even see soybean going from The U. S. To South America and being used for domestic Brazilian purposes. And then the Brazilian beans goes to China, etcetera. You will you may have more soybean meal being shipped, right? So you use the crushers to the max in different places zone. There'll be plenty of reshuffling, but we cannot model that exactly. I mean, safe to say it is a limited portion of the overall drybulk trade. Again, we quantify it, 0.6% of the total trade. For us, it's even smaller, but it is big for our segments, right? So that is the most important commodity affecting us is soybean. But it's minimal compared to the changes in Chinese coal imports. It is I mean, we don't the change we see from this is smaller than the increase we've seen in U. S. Coal exports, for example, right? I mean, there's just the potential impact of lower speed as a result of the 2020 IMO regulations model a one knot reduction in speed as a result of much more expensive fuel. And the impact on supply is massive, right? It just way overshadows a decimal point on the demand side potentially because of soybean, etcetera. So that's why we feel that overall, big picture, these underlying positive fundamentals that we have in the years ahead with low fleet growth and interesting dynamics on these new regulations, we think over outweighs the negative impact that the trade war has. We hope it gets resolved. We think and hope that Trump is setting up for doing deals and etcetera. But we don't control that. But we think that the drybulk market is used to adjust, and it will adjust this time as well. Okay. I will just talk about the question around the refinancing. So the covenants in the new facility are generally the same as in our existing facilities. Neither in no facilities do we have any cash flow or earnings. So these cabinets are generally around the balance sheet. The most important of which being the loan to value. And I would say the new facility has got a better outcome than our previous facility. So generally, the covenant package is better than we had before on the facilities that we took out. I just want to add one thing. I noticed two questions were about the forward cover being lower than the actuals. And if we're talking about the TCE level, one thing I should add there as well, right, is that we have a certain portion of cargo contracts going forward. And when the market goes up, those cargo contracts that we have are typically entered into at a lower level than the current spot rates, right? So the first half is obviously 100% covered, and a lot of that is spot business. But when we look into the future and look at our fixed days, that includes a much larger proportion cargo contracts, if you understand what I mean, right? And those cargo contracts were entered into in previous periods, which are at a lower level now that the market is rising. So I think that's also one reason for why you see the covered rate TCE being slightly lower than the actual. And what we're hoping, obviously, is that this will be filled up with higher spot rates in the days ahead. Your next question comes from the line of Brian Lee from BNB Capital. Please ask your question. Hello. Congrats on the good results. I just got a hello? Can you hear me? Yes. Yes. Congrats on the good results. I just got a very quick question regarding presentation, Page 15. I just saw that Supermax revenue days are down by 10% on year on year. I understood you had discussed about the drop on export on Chinese steel, but is there any other factors that have driven such a drop on a year on year basis? Thank you. You're correct. The biggest factor is the reduced steel export volumes out of China and Us adjusting alongside. Again, the other factor that I mentioned is that it is getting tougher in an optimistic sentiment market to make money on this short term activity. So if you're often starting with a cargo, right? And the cargo is at a spot rate, and then we try to combine that with a short term ship and make a margin. But if the short term ship rate is influenced by optimistic sentiment, Often, we cover these cargoes. We're starting with a cargo, and then we take in a ship on a six months time charter, a short period ship. And the short period markets have been higher than the spot rates, right, because the owners are expecting rates to continue to go up. So it's simply tougher to make money on that business. We so that's another reason, right? But again, don't draw too big of conclusions on this, right? Focus on the larger owned fleet in a rising market. You want a higher proportion owned ships because you have fixed rates. These short term ships, when the market goes up, the cost goes up, right? So it's difficult. Many operators are losing money on the short term activity in a rising market. So we have a great benefit now compared to many years ago of having a much larger owned fleet. So we use our owned fleet much more. We schedule our own fleet against our cargo contracts and so on. And it's more difficult to use market ships to use against our cargo contracts in a rising market. Peter? Yes. It's also important to point out that this reduction in Chinese steel exports were not linked to Trump's tariffs. This happened long before that discussion even started. This had to do with steel prices and local demand in China for this steel. So you should not link the reduction in these revenue days with anything that has to do with tariffs. That happened way before then. Yes. It has nothing to do with tariffs whatsoever, right? Again, as mentioned, China's steel output is all time high. They're cranking out steel. U. S. Is not. All right. Thank you very much. Yes. One final question on the web. With lower speed, while supply is absorbed, does it also not mean more charter days and thus higher charter expenses? This implies fuel consumption has to drop sharply to offset the higher charter expenses. Could you please understand this trade off? That's not the way it works, right? So every operator is optimizing his speed based on two factors. One is the freight and the second is the fuel cost. And as the fuel is expensive, you save more on fuel by slowing down than you lose on time. So your net TCE, so to speak, TCE is after bunker costs, right? So your net daily contribution goes up if you slow down. And that's what people will do. And that will tighten up the supply demand balance and in turn push up rates again until you find a new equilibrium, but that will be at the higher freight rate level. So this market has a huge spot component, and that is adjusting with the fuel price. So hence, we highlight this point that a higher fuel cost has the effect of slowing down the fleet, which is reducing the supply side significantly, which pushes up freight rate by way of tighter supply demand balance. As there are no further questions, we will now begin closing comments. Please go ahead, Mr. Mattsburgland. So thank you all for dialing in and for your interest in our company. Don't hesitate to revert to us and our team for any further questions. Thank you very much. This concludes our conference call. Thank you all for attending.