TRANSCRIPT: Kim Ullman, CEO of Concordia Maritime, Interviewed by Barry Parker

Transcription

1 230 Park Avenue Suite 1536 New York, NY Tel.: (212) Fax: (212) TRANSCRIPT: Kim Ullman, CEO of Concordia Maritime, Interviewed by Barry Parker Kim Ullman, Chief Executive Officer at Concordia Maritime, was interviewed by Barry Parker. To listen to the interview, please click here. Additionally, please find a transcript below. Good afternoon everybody. This is Barry Parker from Capital Link Shipping and we have with us today Kim Ullman, who is the CEO of Concordia Maritime. Concordia Maritime shares are trading on the Stockholm Stock Exchange. Just by way of a little bit of background, the fleet of Concordia Maritime has ten vessels that are P-MAX product carriers. They re around 65,000 dwt. There s a product chemical carrier that s an IMOIIMAX. Kim, I believe you have one and there s one on the way. Is that right? That s correct. Then there s also a Suezmax tanker, which is in the crude oil trades, and I believe there are some charter deals that have either started or about to start, so we ll talk about that. And just by way of to give a sense of size of the company, in the recent financial reports for the first quarter the EBITDA was around $9.9M when it s converted to US Dollars, so just under $10M. And to compare that with 2014, the EBITDA for the whole year was $29.3M converted into US Dollars. So for the people listening, you can see that the first quarter is really running at a very good rate. So the first question for Kim. I know there s the Stena Group and then there s another company Stena Bulk. I wonder if you could just clarify the company structure and how the relationship is with Stena. Sure. Let me go back one more step. Stena, as a group, is a Swedish shipping company and a conglomerate built in Stena Bulk started tanker activities in Two years later, we created Concordia Maritime and sold the tankers to the Concordia Maritime company, which is an investment company listed on the Stockholm Stock Exchange. The Stena Sphere still holds 52% of the shares. So Concordia Maritime owns these tankers that you were just mentioning, 14 tankers, and Stena bulk is continuing to operate as a chartering arm and commercial operations arm for Concordia Maritime. Also, Stena Bulk at the time retained the right to continue investing in tankers as well. But the link is that Concordia Maritime always has the first right of refusal for all the deals that Stena Bulk is doing to protect the public interest, so to speak. 1

2 Okay. Concordia Maritime has been public since So what s been the evolution? For example, it s been always tankers but there are different kinds of tankers, different kind of trades. What s been happening over the last 30 years? That s a good question and an interesting one. We started out with just a few tankers, actually, in different sizes, and we were kind of feeling our way through the markets at that time. But quite soon after that, we decided to go for just one size and one size only. At that time, we were a pure play company, which was a large tanker company. We invested in VLCCs and ULCCs. We found a number of them, and they were of exceptional good quality. They were still secondhand but very, very high quality. When we did that, we kind of evolved into becoming a partner with the major oil companies and the high league participants, so to speak, in the tanker industry with these quality tankers and really evolved from there. Then around early 2000 s, when these tankers were getting somewhat old, they sold into the offshore industry for another 10, 15, 20 years as a floating storage. And at that time, we changed the tac again a little bit and went into specializing or building specialized tankers like the P-MAX tankers for the oil industry, in particular, tailor made for the oil companies. So they were slightly bigger or rather beamier than conventional product tankers. We named them P-MAX - product tanker max vessels, and we built a series of ten and put them all out on any charter for 3, 5, 10 years to start with. So that s how it has evolved through just a few tankers, the big quality tankers, to now specialized product tankers. We re now taking that product tanker segment into the next generation and that is the IMOIIMAX concept, of which we are having two ships delivered, and more ships to come later on this year. Part of what you do, is sale and purchase. You mentioned earlier that you sold generation of VLCCs, but is sale and purchase a very active part of your business? It s not like you re buying and selling ships every few months. It seems to be more of a long term thing. Is that right? That is definitely right. We re not that active on a year to year basis. It s more that we make a big splash every so often, and then we build a series of ships that make sense for the strategy of that time. But of course, the concept of buying and selling, the timing of it needs to be there and that has been there. So we ve always been relatively successful in buying in the low end of the market, and we re fine with that. Every now and then when we do these exits, the floating storage was one, we sold to Arlington was another one. Of course, last year we did one of these sales as well as a school book example when we sold a couple of Panamax tankers. So not that active, more strategically and do it every three or five years. Let s talk about also a strategic kind of question. It has to do with fleet employment. The questions that ship owners have to deal with spot versus time charter and how you time that, how you do a mix. Are you responding to the market when you do that? I did notice on your recent financials, for example, I think your Suezmax tanker that s in the spot market or it was during the first quarter and it was earning, I think the number was $44,000 a day, which is very good money, and it was a big contributor to the EBITDA. So 2

3 how do you manage that particularly now at the point where we have a very strong spot market all the way around? Most of the P-MAX started with timecharters. They came off their long term time charters one, two or maybe three years ago. So then we ve had a poor spot market but that was kind of part of the idea, not that we should come out in the poor market, but we were waiting for them to come out of these time charters and of course play the spot market and would not put them out on time charter in such a low market. So the idea is to wait for the market to improve and that s exactly where we are right now. And that s part of the strategy where we waited for a couple of years, and now we re here. The P-MAX is where our team finds niche trades for these vessels where they can be utilized to the maximum extent, their entire beam, so to speak, and take 30% more cargo and thereby get premium pay. They re all out now basically in the spot market. We re building up this niche employment strategy around these tankers and there will come a day, give it the next 12 months or so, where we will try to put that out on time charter for a longer term as well. The IMOIIMAX specifically, we re quite happy with that design. It was specifically designed from a commercial background where our sister company Stena Bulk had a joint venture with the Danish company Weco; it started Stena Weco. They have specialized trades for these IMOIIMAX tankers with 10 segregations trading in CPP, chemicals, palm oils and vegetables oils. So they are not going to go out on time charter. They are going to stay within that Stena Weco system and that is the same thing with the Suezmaxes. Concordia and Stena Bulk had this relationship with Sonangol now for ten years, and so these Suezmaxes that we have are all trading spot under the umbrella of the Stena Sonangol Suezmax pool. Okay and that s proven to be a very good decision with some of these numbers we are seeing. Yes. Going forward, just back to the product tankers, there is one of the IMOIIMAX that s coming out later in the year. Stena Important I think is the name. What are the plans beyond that? Are you thinking about other orders maybe? Well, not really. We like IMOIIMAX. We re just about to take delivery of those two. Give it a year or so, we ll definitely look into increasing that size. That is where we want to go forward. As I said before, it s deriving from commercial experience, so we know what we re doing. We like those tankers. First of all, we have to take delivery of what we have. Then we have to be very prudent in not running to the shipyard and over ordering in any way. So we re quite sensitive to that. There s a fine line we have to walk there. That s for sure. But the expansion plans that we have is in that segment. Okay. And the crude oil segment, I know you ve done some deals early in the year which I think are more charter deals. How are you looking at that going forward? 3

4 We did a couple of crude oil deals. We saw that as a compliment to the core product tanker fleet. We saw the crude tanker market taking off much sooner than the product tanker market. So we re kind of quick. And that s part of this whole setup. That s one of the first questions you had about how it works between the Stena Bulk and the various pools, Stena Weco and Sonangol. So they were taking a couple of positions and we joined them in these positions. They re already placed in the pool making big money as you were saying. But it s more quick profitable deals that s complementary to what we already have, and that s part of my background too. I ve been on the chartering side and commercial side my whole career, so I ve had my hand on it. Let s switch gears a little bit. In recent years there s just been an onslaught of regulatory measures of all types. This is a big trend throughout shipping, all sectors. So my question is really mainly about the P-MAX product tankers. They operate, as I understand it, a lot of the businesses in North American waters, Caribbean or nearby. Recently, there s been a tightening of restrictions on the sulfur content in fuels. Certainly, this has been known well in advance, so it s not like a surprise. But has it changed the way you operate at all? Not really, actually. You know it s been known for quite some time. In some areas you can find, especially Europe, this new eco fuel, so to speak. In US, in North America, there s not so much of that. But certainly you just simply buy the gas oil instead and adhere to the new facts and rules. So it hasn t really changed in any big way our operations due to this. There s another question. It s not about regulatory development. It s the Panama Canal. There have been some delays, but I think the wider Panama Canal is due to open early next year. Is that going to have an influence on the trade patterns that you re involved in? It will certainly open up more options as we see it. We re still in a situation where traders, oil companies, at times, in oil trade in the Caribbean and North America require options to go through west coast and things like that. Things that we in all sense cannot do today. So yeah, we re seeing that as an interesting development we can gain from actually. There s going to be new trade flows for you that don t really exist yet. Yes. Now that s a good thing. Yes. 4

5 Just a few more questions Kim. So I wonder if you can just look at a big picture, what are the next steps to really maximize the shareholder value for Concordia? Well, foremost that this fleet strategy is being followed through; the fleet strategy that I implemented when I started a year and a half ago at this position. That is to find these premium paid niche trades and we re getting more and more successful in doing that, actually, in various areas of the globe, including Far East or Southeast Asia, Australia, and New Zealand. By that we can fill up the ships, and we can get the premium trades, and we can earn more money and get high utilization. That plus the two new IMOIIMAX vessels will contribute big time to higher EBITDA and results for this year. On top of that, lastly but not least, we like to have higher visibility. We like to be known a little bit more. We like to be out on the scenes more than we have been and let people know that we have a very good tanker company readily available for investors. Alright, well certainly at Capital Link we re helping you achieve that last part. But it s important to just point out to the listeners that a company like Concordia is really the opposite of the commodity kind of company, which says let s buy some ships and the market will go up. This is really a much different kind of a company. So a final question for you, Kim. This year and just going forward, talk about your segment, but also the whole tanker industry because I know you have a background of decades as you said on the commercial side and working on deals for all kinds of tankers. I mean right now we re having not quite a boom, but it s almost a boom. Do you see this continuing? Do you see dangers of over ordering or geo political clouds, just really anything that longerterm may impact the industry? Just curious what you re thinking. Even though we are a product tanker company, let s start with the crude side and where things in a way start. We see a good solid 2015, 2016 potentially 2017 as well market wise, with lower oil prices and longer distances. Suezmaxes in particular are even more versatile than before, certainly more versatile than the VLCCs. So the Suezmaxes are really looking solid for a number of years. We have to watch out for the newbuilding situation at all times. You know we ve had a situation where we re nearly zero fleet growth as we know for the last couple of years in the Suezmax segment, which have been exceptionally good for the market together with the increased demand and longer distances, as I ve said before. And we can t really say very much beyond 2017 since we haven t seen any orders coming in for 2017 yet in big ways. Let s just watch that space. On the product side, I ve always called its good prospects but a little bit fragile. We still have around hundred ships this year to be delivered. So product is a little bit behind the crude segment from that point of view. Is it fair to say in the product sector also there are the longer hauls we ve been hearing about that refineries have a further distance from the consuming areas? Yeah, it s finally happening actually and I mean the story that everybody was talking about two years ago or three years ago in 2012, there was nothing wrong with that story. It was absolutely correct. It was just that two things happened. Some of these projects were delayed, some of these refineries were delayed and people started to order ships like there 5

6 was no tomorrow. And there were a couple of gap years in 2013 and But in all fairness, now it s happening in And we have the refineries coming on line. We see the demand for product carriers grow in the regions of 5-6%. But we have this similar size of vessels coming in 5-6% growth each year. So that s why we always call it a little bit more fragile from that point of view, and that s why I use crude oil to start with. We have the swing ships as well. We have the 200 swing ships as well that go from clean to dirty in the LR2 side predominantly, which is then helping the product tanker market as well. So right now it all starts in the right position that seems to be some restraint now in prices in general. It s not that people are rushing to the yards. The prices are not going up but new building prices are even putting a little bit of a lid on the secondhand prices. And that s all good because it s kind of a solid, sound thinking. So in a way I hope that the market is not going to absolutely explode to a boom, thing because then it will trigger all these newbulidings and that will kill it too. So the longer we can have it as we have it today it s looking very promising in both segments for the next couple of years. Alright, well that s very good, and I think we ll end this conversation on that very positive note. So I want to thank you. Again, it s Kim Ullman who s the CEO of Concordia Maritime, and this is Barry Parker from Capital Link Shipping. And I want to thank you for coming on, Kim, and thank all the listeners for taking the time to hear this great story. 6