Welcome to the Norden Interim Report Q1 2021 Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. As a question during the session, you will need to press star one on your telephone. If you require any further assistance, please press star zero. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jan Rindbo. Thank you. Please go ahead, sir. Thank you very much. Welcome to the presentation of Norden's first quarter results for 2021. Thank you for dialing in or following the presentation online. My name is Jan Rindbo, and I'm the CEO of Norden. I will, together with our CFO, Martin Badsted, today be presenting our Q1 results. We hope you have all found time to download the Q1 presentation available on our website, which we will be going through on this call, and we will refer to the slide numbers for those of you dialing in. Turning to slide two, you can see the agenda for today. I will start by presenting the main highlights for Q1 and extend upon each of the three business units. Martin will comment on the market outlook for the dry cargo and tankers. Lastly, I will conclude with our guidance for 2021 and a final few words before we open up for the usual Q&A session. Please turn to slide number four. The first quarter of the year has been a very good quarter for Norden, although this is not directly reflected in the adjusted result of -$6 million. The reason is that Q1 was heavily focused on building value for the rest of 2021, which will be reflected in significantly higher quarterly earnings from Q2 onwards. The underlying driver is the soaring dry cargo market, as asset prices and paid rates have continued to increase during Q1, Norden has further increased its exposure in dry cargo vessels while reducing in tankers. The increased exposure to the dry cargo market has significantly lifted the value of Norden's fleet of owned and leased vessels by $106 million. In addition, Dry Operator has, during the quarter, quickly adjusted its position to capitalize on the market developments and build an extensive long position that will benefit earnings from Q2 onwards. Norden therefore increases its expectations for the full year result to a range between $75 million and $125 million. The developments in Q1 are a good example of how Norden's value creation should always be viewed over a longer time period, taking Norden's agile business model into account. Looking closer at our business units. Asset Management delivered a result of $2 million, yet the main highlight is in the extraordinary increase in the portfolio value, which has now reached over $1 billion in market value. As the management used the volatility to make attractive asset plays through secondhand acquisitions and lease transactions, increasing the exposure to dry cargo. In addition, the business unit has started to exercise some of the many period extension options on the leased fleet, signifying the potential value of optionality in the portfolio. I will return to this in a moment in further detail. In Dry Operator, the surprisingly strong market start to the year prompted a quick readjustment of the position by expanding the fleet during the quarter. While the unit generated a break-even result during Q1, the extensive long position built during Q1 will allow Dry Operator to capitalize on attractive period rates, significantly benefiting earnings from Q2 onwards. On top of this, seasonal disruptions and market inefficiencies created ongoing opportunities for Dry Operator to create value through regional positioning of the fleet. During the quarter, the unit operated an average of 322 vessels, which is an increase of 31% over the same period last year, reflecting very strong demand from customers for our service. In Tanker Operator, the unit achieved a Q1 result of DKK -8 million as the tanker market continued to be challenging in Q1 due to low global oil demand. Although Tanker Operator ended Q1 with relatively high coverage on its fleet, the business unit was not immune to the extremely low freight rates. Q1 is usually the strongest period of the year, yet product tanker rates remain extremely low due to the weak oil demand and pressure from the crude market. We expect the market to have bottomed out, allowing for gradual improvements during the second half of the year. Tanker Operator has therefore prepared for increased activity later in the year, creating an optimal vessel portfolio and a long position for the second half of 2021 and beyond, with built-in optionality. The unit also benefited from pool management fees of $3 million during the quarter. Please turn to slide seven. As outlined earlier, Asset Management has started to exercise a number of one-year extension options on its leased dry cargo fleet and is able to benefit from the considerable amount of optionality within the portfolio. In the two graphs shown, we have summarized the range of period extensions and purchase options in our lease fleet, where you can see the yearly average strike price level of each vessel type currently in our portfolio. Until the end of 2022, Norden has 20 period extension options on dry cargo vessels and four extension options on tankers. The ability to extend dry cargo vessel contracts on considerably lower levels than the current market rates represents significant potential value for Norden. I will now hand over to Martin for an update on the market outlook. Please turn to slide number nine. Thank you. If we look at the dry cargo markets, we expect the market to remain strong throughout 2021. The continued global economic recovery and major stimulus packages in line with COVID-19 vaccinations are expected to benefit demand through both infrastructure projects and agricultural imports. This is supported by the recently announced production targets of Vale, with plans of producing 450 million tons of iron ore by the end of 2022. Key risks to the outlook are the continued and persistent flare-ups in COVID-19 outbreaks and a greater than expected slowdown in Chinese industrial activity. On the vessel supply side, order books continue to look favorable in the coming years as there are no signs of increased ordering despite the ongoing surge in dry cargo market rates. New ordering activity will be further limited by container vessels taking up yard slots, while rising cost of steel is supporting the higher asset values. Turn to slide 10, please. Shifting our focus to the tanker market, Norden expects the gradual rebound in both supply and demand for oil to continue during the second half of the year, leading to gradual improvements in rates. There are already positive signs where, for example, the U.S. market demand of gasoline and diesel is close to pre-COVID-19 levels. However, the slow pace of vaccinations throughout most of the world and continued local COVID-19 outbreaks are expected to continue to limit the upside in period rates for the remainder of the year. Meanwhile, order books for tanker vessels continue to remain at a 25-year low, providing some level of support for the challenged market. As was the case for dry cargo, new ordering activity will be further limited by container vessels taking up yard slots. Back to Jan, who will update you on our guidance for 2021. Turn to slide 14, please. Thank you, Martin. Based on a strong performance in the Dry Operator business unit, which is expected to bring significantly increased earnings in Q2 and the second half of 2021, Norden raises its guidance for the year to $75 million-$125 million. Norden, of course, remains committed to paying out minimum 50% of the annual adjusted result. Asset Management expects lower earnings in 2021 compared to last year due to lower coverage rates on the tanker fleet. The long-term focus of the business unit means it is less dependent on spot rates. However, the value of the portfolio of owned and leased vessels is expected to be significantly higher compared to the end of 2020, in line with the improvements witnessed in asset values and forward period rates in dry cargo. Dry Operator expects an annual adjusted result which is significantly better than the record result for 2020. Dry Operator expects to capitalize on high activity growth in a very strong dry cargo market and deliver better than expected earnings in Q2 and second half of 2021. Tanker Operator expects an adjusted result which is much weaker than 2020. While the business unit has a lot of coverage, the historically weak tanker spot market in the beginning of 2021 is expected to lead to weak results, which will only partially be recouped later in the year when the market is expected to recover. Please turn to slide number 15. The estimated market value of Norden's combined portfolio of owned and leased vessels increased to over $1 billion at the end of 2020. This results in a Net Asset Value per share of DKK 159. On top of this comes the value generated from our two operators. When looking at the annualized earnings since both units were established, Dry Operator has achieved $29 million on average per year in earnings, while Tanker Operator has achieved $13 million on average per year. This means the two operators combined are making approximately $40 million-$50 million in annual profit historically, which is equivalent to DKK 38-DKK 50 per share when applying a low earnings multiple of six. We believe the ongoing value generated from our two operator units is a major part of assessing Norden's value and earnings potential going forward. Turn to slide 16, please. To sum up, Norden experienced a great quarter that was heavily focused on building value for the rest of 2021, which is reflected in the increased guidance for the full year result. The value of Norden's owned and leased fleet increased by $106 million and has benefited from the continuous shift to dry cargo over the past quarters. The strong dry cargo market development enables Norden to start utilizing its period extension options and underlines the potential of optionality in our portfolio. Dry Operator has built an extensive long position for the rest of the year that can capitalize on the very strong dry cargo market and deliver better than expected earnings in the second quarter and second half of 2021. At this point, we will move to our Q&A session and open up for any questions that you may have. Operator, please open up for questions Thank you, sir. As a reminder, if you wish to ask a question, please press star and one on your telephone, and please wait for your name to be announced. If you wish to cancel your request, you may press the hash key. We have your first question from the line of Casper Blom of ABG. Your line is now open. Thank you very much. Congrats with the strong, if not results, then at least a strong outlook for the remainder of the year. A simple question. Given how strong the rate environment is in dry bulk seems to be at the moment, how is the possibility to basically secure longer- term contracts? Is it possible to sort of already now secure good business into 2022 and potentially into 2023 also? Thank you, Casper, for that question. What we have seen initially in the quarter was that the upturn in dry cargo was very much a spot-based upturn. What we have seen lately is that this is starting to spill over, both to the second half of this year, but now also into the following years. When we look at the forward freight curve, then there's been some significant increases for 2022 and also now 2023. There is a growing optimism there. In terms of physical cargo contracts, I would say there, I think customers right now are a little bit more hesitant to lock in long contracts. I think that should be viewed in remembering that the kind of rate environment we're going into now is very different from what we have experienced now for the most part of the last 10 years. Therefore, we probably need to have a slightly longer period before we will see sort of a significant increase in the amount of long-term physical cargo contracts that can be secured. You can now actually go out on FFAs and lock in some pretty attractive rates, at least historically, for 2022 and also 2023. Interesting. I'd almost forgotten how good it can be when it gets really good. These outlooks, does it in any way change your view on the asset manager, and how to position that for potential longer- term dry cargo option? I don't think it changes our view specifically on this. We think actually the strategy and the business model that we have is extremely valuable in the sort of market environment we are in. What we particularly like about Asset Management and what we have highlighted here also today is the upside that we have to all the optionality in that portfolio. Whilst we, you can say, only in brackets, own 22 or 23 dry cargo ships, we actually have options to buy another 51. I think that is an important part. It's a little bit the risk reward, we think is very attractive in the Asset Management portfolio, but we will still have the long-term view of having a business that is tradable, so where we can actually change our positions. If we, for some reason, later can see that the dry cargo market is developing differently, then we can actually act on that and change our portfolio. I think that is a very important point for Norden to have that ability. We've used that last year, both in our operator units, but also in Asset Management where we have decreased our exposure in tankers, and then we have actually increased our exposure significantly on the dry cargo side. That will benefit Asset Management in the coming years. On the 51 vessel options that you have in dry cargo, as you just mentioned, what would it sort of take for you to really push the button and really go ahead with more of this? Is there some sort of specific thing we could look for, or is it also a matter of you wanting to wait as long as possible to feel as certain as possible? Secondly, is there sort of a time where these options run out, if you know that? Yes. If you look at the presentation on page seven, we've outlined the optionality in the portfolio. I think there you see the average strike prices across the portfolio. I think it's fair to say that the period extension options, as you can see in the rate range here, already have moved to be in the money. We are now already actively starting to exercise some of these options. On the purchase options, when you look at the asset values, what we are seeing in the market is that obviously spot rates have moved up. We are now seeing period rates and FFA rates are moving up for the next two to three years. We have also seen asset prices moving up, but asset prices are moving up a little bit delayed compared to period rates and spot rates. At least if you look at the period rates that are now moving up, that indicates more upside, we think, on the asset prices as well. When you look at the strike levels that we have on our purchase options, we do need to see asset prices move up further before the purchase options start to become. Attractive. We probably need to see another 10, maybe 15% of increases on the purchase options before we really move into the territory where declaring these purchase options could be interesting. Okay. That's very clear. We also outlined that for between now and the end of 2022, we have 20 period extension options that can be declared on dry cargo, and then we have four on tankers as well. With the way things have developed just in the last two months, then there clearly could be a lot of value here. A quick final follow-up question from my side. You're kind enough to give your estimated Net Asset Value on the steel and the options, the DKK 159 per share, I believe. That's of course, a little more than a month old. Do you have a feeling if you were to update it as of today, what the value would be? I don't think we can give you a number on that, because it's not something that where we ask the brokers for updates on the values every month. I would certainly say that on the dry cargo side, things have continued to move up during April and the early parts of May. My expectation would be that if we did this today, it would be higher still. That's very clear. Thanks a lot, Martin and assetco. Great to see the development here. Thank you. Your next question comes from the line of Ulrik Bak of SEB. Your line is now open. Yes. Hello, Jan and Martin. Also a few questions from my side. First one's related to your guidance. You state that the guidance increase is mainly driven by the Dry Operator segment. Has anything changed related to your assumptions or expectations for your outlook for Asset Management or Tanker Operator, which is also included in the updated guidance? Hi, Ulrik. No, I would say, of course, there are always some minor changes here and there. Effectively, there have been very limited change in the Asset Management and the Tanker Operator. Probably the spot rates have been slightly weaker than what was expected when we issued our last guidance at the end of March. I would say it's really minor. The big thing here is really the Dry Operator. Okay, that's very clear. Thank you. Can you maybe also highlight in which segment you see the largest uncertainty related to this guidance range? Whether you consider there to be more upside than downside given the current market outlook? Yeah, that would be my second question. Yeah, thank you, Ulrik. Good question. Difficult to answer, I think. Clearly the momentum right now is in the dry bulk market. That is what is benefiting Dry Operator with the position that they have there. On the other hand, if the market continues to push up, there could be some more upside there. I would think, Dry Operator is where there's most volatility right now and where we could have the biggest impact on the guidance. I think on Tanker Operator, we expect a more slow, gradual recovery. That is what our estimate is based on. Okay. Very clear. Thank you. If you have to say something about what needs to be true or come true in order to end in the high and the low end of this guidance range, would it be the tanker has an increased recovery or what would it take to reach DKK 125 versus the DKK 75 at the low point? I would say that is actually, as Jan also said before, that is mainly due to the Dry Operator. We have built a big position, we have a very high activity level. I think we are approaching 370 vessels in Dry Operator. When you couple that with daily volatility in forward rates that can easily exceed $1,000 per day, there are some big swings taking place in our portfolio at the moment. If the market continues to firm, or if you say the curve is just shifting out, as we have seen over the last couple of months, where the higher rates are rolling into the rest of Q2 and Q3, there is, of course, the possibility the Dry Operator will end up in the higher end or will result the group to end up in the higher end of the guidance. Okay. Thank you. Very clear. My second group of questions is related to the net debt. Can you please discuss or elaborate on the development of the net debt since 31st of December, where you've gone from net cash to now net debt of $150 million, if you exclude the lease liabilities? Can you just give a brief overview about what has caused that increase? There are, you can say basically three main factors here. One is, of course, the dividend that we paid out to our shareholders of $50 million. The other two are mainly operational and related to the dry cargo market development, where on the one hand, as I said before, we have a record high activity level, so that ties up working capital both in bunker inventories and in receivables. We are actively using FFAs and bunker hedges in our portfolio management. You will see also from the accounts that the adjustments on fair value hedges has been negative. This is really, you can say, an indication that sometimes you can say a game plan is to take TC capacity in, and then cover some of the exposure using derivatives. That ties up cash, and that is what you see in the change in the net debt position. Okay. Great. Then lastly, your leverage, given the outlook that you have upgraded to now, then you should generate a significant amount of free cash flow this year as well, and thereby also decreasing the net debt during the year. Firstly, do you have a leverage target? Secondly, what are your capital allocation priorities, yeah, with that in mind? I wouldn't say that we have a specific leverage target. We do a lot on our risk management side. We have actually implemented over the last couple of years, what we believe to be a very efficient and structured capital allocation process, where we constantly debate the risks we are taking and the risk-reward outlook that the business units are seeing. We try to allocate capital and limits to where the risk-reward is most attractive, given the outlook. I would say we are flexible on that, but of course, not taking too much risk is paramount also when the markets are so volatile as they are right now. Okay. Thank you. No further question from my side. Thank you. The last question at this time comes from the line of Anders Karlsen of Danske Bank. Your line is now open. Yes. Good morning, gentlemen. Impressive guidance upgrade. A question in terms of you added a quite significant number of optional days, in particular in the dry cargo side. Is that far out in the curve, or when is that optionality due? Is it two years from now or is it one year from now, or how can we look at that? Thank you, Anders. That's a great question. I guess we can answer it looking at this slide seven in the presentation where we have the overview of the options. Here you can see the time period, both for the period extension options and the purchase options. You can say in the sort of more nearby period between now and the end of 2022, we have 20 period extension options on dry cargo and four on tankers. Okay. Those are the most sort of relevant for now because they are the ones, when you look at the rate levels and compare them to at least the current one year rate, they are the ones that are in the money and therefore could have good value. As I mentioned earlier, on the purchase options, we probably still need to see asset prices continuing up a bit more before the purchase options also become more attractive. Okay. No, that's a good answer. In terms of newbuildings, you're saying that you're being crowded out by container vessels, but if you were to place a newbuilding today in a decent yard, what kind of timing would it be? If you started from scratch today, when would you get delivery? Any idea around that? Yes. First of all, we are happy that we placed some newbuilding orders last year around this time actually, because both in terms of price and availability, that was an attractive time to do that. Today prices are much higher and the delivery time is pushed out further in time. I think today, depends a bit on, of course, on which yard and how many ships you want to order. I think you are now quickly pushing into 2023 before you get more choices, at least in terms of yards and number of ships that you would like to build. Okay. I think it's also important to remember here that the yards are also pushing up cost, not just because of the development in the market here, but also because the input costs are going up quite significantly. Steel costs are rising, labor costs have gone up. All this also adds to the cost levels. Where yards in the last few years have taken orders at basically at loss-making levels, now they both need to cover up for the increased cost, but also trying to get obviously some profit margin from ships. Actually we think the whole new building scenario has changed a bit. That's also why I think both we and the market are building more confidence in the future because we can see that, first of all, so far at least, there's been very good discipline both on tankers but especially dry cargo of not ordering ships, even though we've actually had a better dry cargo market now for some time, six months at least. That bodes well for the future. You have container orders filling up the yards now. It's quite staggering to see how many container ships that have been ordered just in the last few months. That is to some degree a game changer, and that will push out delivery time for building dry cargo and also tankers. I totally agree with the argument. It's always the oversupply that kills the market really. I'm surprised that there hasn't been an influx of order, but that also shows the complexity of the questions around fuel future and everything. It's going to be interesting to watch the development. I thought in terms of crowding out from container source, isn't that more on the tanker yards than the dry cargo yards? Have they also moved into the container space and are going to construct more advanced vessels? I think for some of especially the larger container ships, I think you're right that that's probably more potential tanker new building capacity that you're taking up. Certainly on some of the smaller container ship orders, we see an overlap also with dry cargo there. Okay. That's good. It's interesting to watch the developments here and the strength of the market has taken me by a bit of surprise, but it's fantastic to see. On more of a general note, what keeps you up at night these days except for counting cash in the dry cargo segment? What are your worries? I can start and then maybe Martin as the CFO would like to take over at some point. I don't know. I think we are still in the middle of a pandemic. There is some uncertainty in that. I think we are also seeing the light at the end of the tunnel, and that's positive, but we should not forget that actually right now we are seeing the highest number of COVID-19 cases since the beginning of the pandemic. I think on a global level, this is still a big challenge. I think until we can see across the world that we are moving out of the pandemic, until then I think there's still a risk on that. Yeah, on top of that I would say for my part, we mentioned it also during the presentation, but it seems that China is in the process of withdrawing some of the stimulus that they put in place during the COVID-19 phase. Of course, handling that is paramount to also protecting I think the upturn of the dry cargo market. If they withdraw too quickly and too much, we could of course see rates coming down again. Okay. That's good. That's everything from me. Thank you. All right. Thank you, Anders. Thank you. Your next question comes from the line of Marcus Ballander of Nordea. Your line is now open. Yes. Thank you. Just wanted to follow up on the discussion about new ship orders. I'm just wondering if this doesn't somehow fit very well with your asset trading strategy. You placed some very timely new orders last year. Could this be an opportunity to sell those orders on before they're even delivered? Thank you, Marcus. That's a good question. That is indeed still part of our thinking. When we placed this new building order, we did that again from an asset trading perspective, that there could be an opportunity to actually sell the ships even before they deliver. Now, of course, we look at our portfolio, and there are other ships that we could choose to sell that may be better to sell than the new buildings. Actually I think we have a pretty good example of having bought a Kamsarmax back in December. We decided only what, three or four months after buying that ship to sell it again. We did that at a nice profit. Actually we sold it before we had even taken delivery of the ship. These asset trading opportunities are certainly there and during Q1 we have actually committed to also buy a few more Kamsarmaxes that will deliver later in the year. We are still quite active there. It is still with an asset trading mindset, so it's not that we necessarily look at owning these ships for a very long period. It's just great to see the life that there is in the asset market, that both asset values are moving up, and there is great liquidity. I think we had the busiest quarter ever or for a long time at least in dry cargo in terms of sale and purchase activity. That ties well in with our strategy. Understood. Thank you. One more question, if I may, and it's about your guidance, just following up on Ulrik's questions. Sorry for harping on this, but I'm just trying to understand the dynamics here. The guidance range is wider than it was when you presented your first guidance for the year. I'm just wondering, have no profits been locked in, I guess is my question. Yes, for sure. We have locked in quite a lot, I would say. Nevertheless, we still have a big position in dry cargo. As I said before, we are running 370 ships. I would say when we are in these market levels and this territory we are in, you see huge swings on a daily basis in the forward rates. The combination of these factors actually lead us to still think that it's prudent to have a wider guidance range than normal, and also wider than when we issued the first one at the beginning of March. Okay. Makes sense. We shouldn't interpret your guidance range as $75 million being an absolute floor. I would say both the 125 is not the absolute ceiling and the $75 million is not the absolute floor. I think in this market environment with the risk and volatility, there are no givens. Of course, we believe in our case, and we think we're doing very well actually on the Dry Operator side, but there are no guarantees in this market. Okay. That's helpful. Thank you very much. Thank you. There are no further questions. I would now like to hand the call back to Jan Rindbo for final remarks. All right. Well, first of all, thank you for some very good questions, and thank you for listening in, and thank you for your interest in Norden. Have a good day. Thank you and goodbye. Thank you very much. That does conclude our conference for today. Thank you for participating. You may all disconnect.