Himalaya Shipping Q4 2024 Earnings Call Transcript

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February 20, 2025

There are 5 speakers on the call.

Operator

At this time, I would like to welcome everyone to this Himalaya Shipping Q4 twenty twenty four Investor Presentation. Today's call is being recorded.

Speaker 1

Thank you, operator, and a very warm welcome to Himalaya Shipping Q4 twenty twenty four Investor Presentation. My name is Herman Billong. I will take you through some highlights and some financial and company specifics before I leave the floor to Lars Christian Svensson, COO. And I ask you just to pay attention to the safe harbor and then to the highlights. Before I start, I mean, there is no secret that the drybulk market has been facing some headwinds lately.

Speaker 1

But I would like to stress that our constructive market outlook remains. And it and Lars Christian will take you through that a bit later on. Q4, all the 12 vessels delivered generated total operating revenues of NOK 29,600,000.0 and average time charter equivalent earnings of approximately NOK 27,800 per day gross. Net income of NOK 1,000,000 and adjusted EBITDA of NOK 21,300,000.0 for the quarter ended 12/31/2024. We did a cash declaration distribution for September, October and November 2024 of $0.1 0 point 0 4 dollars and $0.01 per common share, respectively.

Speaker 1

Subsequent events, we declared a cash distribution of $0.5 per common share for each of December 24 and January 25. And we entered into new time charter agreement for Mount Nurifjell for fourteen to thirty eight months, the vessel will earn an index linked rate, reflecting a premium to the Baltic 5 TC index that is higher than the average premium on our current charters. Then through some financials. Operating revenue of NOK 29,600,000.0 in Q4, which was a decrease of NOK 9,600,000.0 in comparison to the prior quarter. The decrease mainly or due to the decrease in BCI rates in the fourth quarter.

Speaker 1

Average TCE, gross of approximately 27,800 per day in Q4 versus 36,800 in the previous quarter. The cash breakeven estimated to be approximately 24,600 per day. And total operating expenses of 15,600,000.0 in Q4 remain materially consistent with the prior quarter. Interest expenses of 13,200,000.0, a decrease of 100,000.0 in comparison to the prior quarter. The decrease is a result of a decrease in loan principal outstanding due to a quarterly loan repayments.

Speaker 1

Net income of $1,000,000 in Q4, a decrease of $9,700,000 in comparison to the prior quarter. And the adjusted EBITDA of 21,300,000.0 in Q4, a decrease of NOK 9,700,000.0 in comparison to the prior quarter. Then balance sheet summary. Net cash generated by operating activities in the fourth quarter was NOK 10,500,000.0. Net cash used in financing activities in Q4 was NOK 12,600,000.0, consisting of loan repayments of NOK 6,500,000.0 and cash distributions paid of NOK 6,100,000.0.

Speaker 1

Minimum cash balance required under the sale and leaseback arrangements of 12,300,000.0 presented as part of cash and cash equivalents as of December 31. Decrease in vessel and equipment, primarily due to depreciation of SEK 7,300,000.0 recognized during the fourth quarter. And a decrease in short term and long term debt of SEK 5,100,000.0, primarily due to loan repayments of NOK 6,500,000.0 offset by deferred finance cost, amortization of NOK 700,000.0. And we have NOK 8,000,000 available to draw down under the RCF with Drew Holdings Limited following the 2,000,000 draw down in 2025. The next slides shows the key financials year to date for 2024.

Speaker 1

And I just want to stress that these are unaudited numbers. Then to a company update. The entire fleet following the feature of Mount Norefel on index link means that the entire fleet now is earning index with a premium. And we firmly believe that our premiums are superior to any of our peers. And the average premium to the BCI is 42.7% as we speak.

Speaker 1

The next slide to the left just shows that we really are giving our shareholders a full payout. The left shows dividend per share in percentage of earning per share. And for the full year, that was 102%. And to the right shows that Himalaya shipping earns an average premium versus the index of 47% and average premium compared to our peers at 25%. The next slide shows two things.

Speaker 1

One, that we ordered at the right time to the left with a share price of $4 and 77, which was the case a few days ago. The enterprise value per vessel is million dollar 63, while the present broker quote gives a net asset value of $9 per share. To the right illustrates the financing we have in place for our vessels compared to a new building price of million dollar 95 with a regular bank financing. The dividend capacity is very solid. This slide shows illustrative free cash flow per share based on Capesize index rates ranging from, say, 16,300 where we are at breakeven up to a theoretical or not theoretical, which very well could happen, a market at $55,000 where we have an free cash flow per share of $5.3 on per year.

Speaker 1

Capital discipline is the buzzword. We have a cash breakeven of $16,000 per day on Capesize index equivalent versus BCI average of $22,000 per day over the last four years. We have full alignment between shareholders and management, board and sponsors on one third of the equity. We have no reinvestment plans. We have the youngest fleet in the industry and means limited capital needs.

Speaker 1

Cash flow from operation targets to be distributed in monthly dividends. And we are proud that we have so far paid 12 consecutive monthly dividends and the $0.15 for Q4 twenty twenty four. Then I leave the floor to my dear colleague, Lars Christian, who will take you through the market update.

Speaker 2

Thank you, Hermann. The 2024 overall tonne mile was satisfactory with a year on year increase of 3.1% for Capes and Newcastle MAX. However, as you can see from the left graph, after three strong quarters, the historically strong Q4 contracted unexpectedly. Even though the iron ore and bauxite volumes performed well with record exports from Brazil and Guinea respectively, you can see from the right graph that coal demand on the Capes and Newcastle Maxes was heavily reduced. Due to a weak grain season from East Coast South America and US Gulf, the Panamax segment, the main carrier of grains and soybeans, went looking for alternative business and became more competitive than Capes and Newcastle Max on the coal routes.

Speaker 2

We note with excitement that the grain trade looks to have picked up for the Panamaxes as we're halfway through Q1, which should indicate that more coal will return to the larger sizes yet again. So far, we've seen an overall slow start to the season. There are, however, positives. The bauxite exports from Guinea are up 10% year over year and the Brazilian iron ore exports are up 3.5% compared to the same time last year. Together with the seasonal low tonnage balance, we expect the Capesize and Newcastle MAX market to increase from current levels.

Speaker 2

Many of you are aware that bauxite is used in the alumina production, which is an important component in the automobile industry. Guinea holds one of the largest bauxite deposits in the world and with limited sources to fully utilize the economies of scale, the milk route from Guinea to China on large size dry bulk is set to continue. This is already confirmed so far this year by a continued export increase. As you can see from the two left graphs, Chinese bauxite imports are increasing consistently. The appetite is large and port inventories for the commodity is in steady decline, although the imports are continuously on the rise.

Speaker 2

As an interesting side comment, for the first time in history, there are currently more bauxite transported on Capes and Newcastle Maxes than on coal. Simandou is a household name for most of you at this stage. Iron ore from the Simandou mine in Guinea will come on stream in the second half of twenty twenty five, and the latest update now indicates a twenty four month ramp up period versus the thirty six month ramp up previously communicated. This will provide the market with an additional 120,000,000 tonnes of iron ore per annum from 2027. With the additional value capacity increased by 2026, we're looking at a total of 170,000,000 tonnes of new iron ore volumes from the Atlantic, which mostly will be exported to China, I.

Speaker 2

E. Great for ton miles. The dry bulk market has historically done well where economies are growing. This thesis is likely to be maintained going forward as well, but is also worth looking at the import dependency in large economies, especially China. Since 2015, China has increased their import volumes of iron ore by 6%.

Speaker 2

This coincides well with data showing lower iron ore content in Chinese domestic iron ore and the increased domestic production costs. This means that iron ore prices above $100 per tonne plus import costs are still preferable to the Chinese compared to domestic production. The same can be said for the coal imports. Since 2015, the coal imports have increased with 8%. In addition, China has commissioned new coal fired power plants which equates to 30% of existing capacity.

Speaker 2

This shows that China is serious when it comes to coal consumption in the future as well. We would like to remind you again of the very compelling Cape and Newcastle MAX supply story. The order book remains at twenty five year low at only 7.2% of the current Capesize and Newcastle Max fleets. And as you can see from the graph on the right side, Capes and Newcastle Max has the lowest order book compared to fleet size among all the shipping sectors. Not only do we have a small order book, but the fleet is aging at a rapid pace.

Speaker 2

50% of the current fleet was built between 02/2015, and by 02/1933, '60 percent of the fleet will be over 20 years old. We remind you that many reputable charterers will not use vessels that are older than fifteen years today. With shipyard capacity down with 50% from the peak in 02/2008, it will become increasingly more difficult to build any meaningful vessel capacity to reduce the increasing average age of the fleet. Our last slide for today is relating to vessel dry docks. But an aging fleet also comes a large increase of dry docks due to mandatory special service required on merchants vessels every fifth year.

Speaker 2

The vessel delivered in 2010 accounts for 10% of the total Capesize fleet and will have to go in for fifteen year special survey in 2025. In addition, you will have the five and ten year special service as well, which means that almost twenty five percent of the total Capesize and Newcastle Max fleet will have to look for a dry dock slot during 2025. We remind you that with the youngest Newcastle Max fleet in the world, Himalaya Shipping will not have to engage in any dry dock discussions until 2028. And with that, thank you very much and I'll pass the word back to the operator.

Operator

You will need to press 5 on the telephone. To withdraw a question, press 5 again. There will be a brief pause while questions are being registered. Our first question comes from the line of Paul Magdal from Clarksons Securities. Please go ahead.

Operator

Your line will be unmuted.

Speaker 3

I wanted to ask you about your near term market view essentially. So the SSA market, it's been a big rally and quite steep contango, right? So April contracts above 18,000, rest of the year around 22,000. First off, maybe any comments you have on the near term outlook? And secondly, are you willing to lock in part of that term right now?

Speaker 3

So what's your thoughts?

Speaker 2

Hi, Frode. It's Lars Christian here. Near term, I would say this week has been very positive. It's good to see that the cyclone in Australia seems to have shifted and deport operations are resuming over there. So we see more increased volumes out of Australia this week, which is very much welcomed after the last two weeks of slow markets.

Speaker 2

In addition, we do see quite a lot of activity now on Brazil and the bauxite out of West Africa, which has been pumping steadily all year. So the near term looks quite solid I would say and obviously we are aware of are very much aware of the contango on the FFA curves as well. So it offers good value going forward I think if you converted to CAL quarter two, three, four today, we can probably convert our fleet into $30,000 plus per day for the rest of the year, which is compelling numbers. So we will obviously have an ongoing process here where we find the right level to be. But at the moment, it looks like the physical market might aid this a little bit further.

Speaker 3

Okay. So it sounds like you're probably willing to wait and just follow the stock backlog from current levels. So, makes sense, I guess. The second question I had is on the supply side, a very interesting slide on page 22 on the off fire. So clearly a very supportive event that the ships are off fire because of drydocking, right, but, what about slow steaming?

Speaker 3

Do you have any view on that? Could you see, I guess, all the ships, not being compliant with the carbon intensity might cease further slow steaming? Any views on that one?

Speaker 2

Yes. So far this year, I would say the fleet overall is slow steaming quite a bit already. So I wouldn't see it as likely that the total fleet will slow down even further from this stage. If anything in tandem with the rising market, I would expect to see a little bit of an upturn. Obviously, coming into the end of the year and into next year, it will be more and more owners will have to relate to these slow steaming requirements to make sure that you tick all the boxes within the environmental regulation.

Speaker 2

But at the moment, I think the fleet is operating at a slow pace. And if anything, it will turn back up in the near term.

Speaker 3

Okay. Fair enough. Good color. Thank you.

Speaker 4

Thank you.

Operator

Next in line, we have Peter Haugen from ABG. You now now will be unmuted.

Speaker 4

Good afternoon, guys. Quick question first on dividends here. So right now with the index up to sort of 6,000, it's not that much to pay out, is it? So if you could comment on how we should model your dividends now going in the next months? And also just remind us if there are any other elements to think about other than the minimum cash requirement from the sell leaseback agreements?

Speaker 1

Hi, Petri. No, I on the dividends, we will strive to continue to pay monthly dividends. And as you correctly says, March is not the or February so far is not a fantastic month, but we will still try our utmost to continue to pay dividends. And as Lars Kristal mentioned, the way we are in contango, but if the market materializes in line with the FFA market, obviously, there are more room for dividends going forward. Your next question was if there are anything else you should pay attention to than the minimum cash, not really.

Speaker 1

It's the same that it's 1,500,000.0 for the eight of the vessels, which kind of is our kind of ballpark figure you should use, nothing else really to pay attention to.

Speaker 4

Okay. Thank you. And if I could follow-up with a market related question. In terms of those volumes now expected from West Africa and the Simon Zu project, have you seen any activity as of yet in terms of attempts from the cargo owners in that project to source tonnage on longer term?

Speaker 2

We do see the secondhand Capesize and Newcastle market being very, very hectic nowadays. There's been numerous transactions especially made by Chinese buyers and there's no secret that they are heavily invested in this particular project. So we believe that a lot of these vessels that are being purchased now is tonnage security for the volumes that are coming on stream later this year.

Speaker 1

And it is very

Speaker 3

encouraging to see Sorry. No, please.

Speaker 1

No, I mean, it's obviously very encouraging to see how asset values are holding up in spite of, say, fairly soft end of the last year and the two first months of this year. But it looks like modern big vessels are in demand. So asset values are really holding up in spite of a softer freight environment.

Speaker 4

That was actually my last question here, Herman. But I guess you then answered that. And I interpret you guys to think about the future demand as the main sort of reason why these asset prices are keeping up, I would say, higher levels than we would have thought if you knew that we would have that Q4, Q1 weakness that we had.

Speaker 1

Yes. No, I agree. And it's also interesting to see. I don't have the number in front of me, but the percentage of transactions done by Chinese over the last few months on modern or Capesizes in general is has been picking up considerably, which is interesting. So and at the same time, we are really behind Simandou.

Speaker 1

I mean, that's also quite encouraging. So the combination of the two looks, it's a support kind of the story the way I see it.

Speaker 4

Okay. Thank you. That was all for me.

Operator

As no one else has lined up for questions, I'll now hand it back to the speakers for any closing remarks.

Speaker 1

Thank you so much for taking the time. And we started the presentation, I think our constructive market view remains intact and we are and this and particularly backed on the supply story that Lars Klistan was pointing at. So thank you very much to all of you and have a nice end of the

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Himalaya Shipping Q4 2024
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