Q1 2020 Earnings Call

Ladies and gentlemen, can get pretty steadily bucket and look out what's your ones too much like the Golden Ocean Group Ltd Earnings Conference call. At this time all participants are in that he didn't.

Third the speaker person they should be able to get close any that's your session. The what's it called said during the session you want it supposed to square.

Please be advised to the these called French is being recorded and the like Thunder Conference I've been here first speaker today Mr. Anderson. Thank you. Please go ahead Sir.

Thank you very much.

Good morning, good afternoon, ladies and gentlemen, welcome to go notions Q1 release presentation. My name is already I understand I'm, the CEO Golden Ocean.

Yesterday, together with C O pit.

She show Thomas amenable to talk through the Communist Q1 results.

You can say Q1 without saying cold it.

Shipping is certainly no stranger to rapid changes, but you would disagree that the covert pandemic change the world and shipping.

Perhaps forever.

In the past months, we've been witness to an unprecedented crisis, which hit us with tremendous false.

It's I guess does that represent eversource today.

Needless to say the upper and save two up I'm pleased and she's always the top priority.

What's the indication of the virus became apparent we took all profitable precautions to protect I'm pleased to ensure business as usual to the extent possible.

And this connection.

Like everything else I station shore based as well she felt for that tremendous efforts and pulling us through these difficult times.

Oh, the wouldn't yet, but we hope the worst is behind us.

It was willing to shop moment at the word to pair what percent. The Q1 answers your off well just across the market outlooks not around today's presentation, along with an introduction to the East GE report, we published earlier today.

We aim to keep the presentation short and focused on the main present it was at the presentation. We welcome any questions that you may have.

Yeah, the word is yours.

Thank you Nick.

I go straight to two this quarter's highlights Golden <unk> reported net loss of 160.8 million. This includes a negative non cash adjustments Oh, I'm reluctant to 5.6 million for the first quartile twentytwenty.

So these unrealized losses, the underlying loss for operational 34.2 million <unk>.

Adjusted EBITDA was 12.3 million.

In January we completed the joint venture agreement with frontline I'm trying figure out to establish T.S.G. marine leading supplier Amar infuse enrich golden Ocean almost 10%.

In early might May we finished our final scrubber installations and know how scrubbers I'm trying to treat our capesize vessels.

We experienced limited delays during the installations.

And finally after Nick said the earlier today published or trend to 19 years Street report, which can be found on their website page.

Moving onto the piano are setting up you know for the quarter with a lot of 168, Oh 60.8 million I did my mainly driven by noncash elements that ever come back to later.

Operating revenue fell by 98.7 million, mainly due to lower market rates achieved in our vessels trading spot I don't index linked time charters, but also due to lower short term trading activity.

Oh Gee decreasing activity led to <unk>.

Contributed to the sort of 2.7 million reduction in sharper higher compared to <unk> previous quarter.

<unk> expenses will stay below the quarter, which partly reflects the higher cost for I will try to 20 compliance your compared to a circle.

[noise] ship operating expenses, including dry dock method Opex on short term lease in vessels was 55.5 million for the quarter well. This amount 10.6 million relates to dry docking compared to 9 million in the previous quarter on 4.9 million relates to estimate that opex somebody in vessel, which is all the problems.

6.2 into previous quarter.

Actively the running opex on our own sleep decreased by 1.3 million compared to the previous quarter did it just but despite the operational challenges related to that Corbett 19 pandemic.

DNA, well 3.2 million for the quarter, which is a decrease of syrup by 8 million compared to previous quarter.

Depreciation increased by 5.4 million, mainly due to Reclassifications made at the end of tend to 19 from abrasive Dupont obsolete or seven older vessels at least from your final.

This reclassification mood or lease expenses from charter hire to depreciation on into financial expenses and the reclassification. It's done the mines Manger. However for the increase in national expenses of 2.2 million.

Due to the severe market conditions experienced during the quarter.

Taking on the impairment loss on leased vessels 70 million relate to seven older vessels on class lease from SFL I'm 24.2 million relates to long term operational leases.

Worth, noting is that under us GAAP only the appetite on an operational leases for impairment and two of the operating leases are taking on indexing charter rates and the benefit from lower Pavel rates is not reflected in this impairment calculation.

Yes.

Interest rate dropped significantly during first quarter. The company booked unrealized losses will tend to treatment related to a port folio or interest rate hedges on further book gains on that for phase 3.1 million.

Which is offset by a loss on bunker hedges or 3.1 million.

We also booked unrealized loss of 8.4 million related or shareholding in Scorpio bulkers.

Adjusted EBITDA came in a positive at 12.3 million for the quarter and we achieved a T.C.E. per day on the tire feet up $11076 per day compared to 21006 on six day thoughts today for the previous quarter.

Moving onto the cash flow the company ended the quarter with 106 to 3.2 million in cash.

During the quarter, we drew down 35.5 million scrubbing elected financing. This is partly from banks and parking to from a SFL.

Cash flow for operations, what net negative at 4.8 million due to weak markets and as well a negative change in working capital.

The company made regular principal payments on depth of 21.9 million unpaid additional 18.8 million in public finance leases.

Investments during the quarter, mainly relates to discrepant installations on amounted to 16.6 million.

During the quarter, we paid 7.2 million or five cents per share in for the dividend fourth quarter.

Following other month cash outflow cast with ended the quarter amongst the 128.4 million which includes restricted.

Tests and it's a decrease of 34.8 million from the start of the quarter.

Going forward the company has no significant capital commitments, but that being said, we have a high focus on preserving or less in this tennessee markets and.

Focus on increasing our cash position should the weak market.

Conditions persist.

Looking at the balance sheet. The most notable change this quarter, it's a 94.2 million impairment that I mentioned earlier that reduced the right the views about significantly.

Excellent short term debt increased by 308.8 million as well or loan facilities for 14, Capesize vessels mature on March 31st Twentytwenty wall.

Means that it gets classify the short term, but the company expects to refinance this facility well ahead of maturity.

At the ended the quarter the Companys book equity was 48%.

Under credit facilities.

I mentioned the company has.

One facility that matures within the next 12 months.

Correct.

I see that the prior to maturity the remaining facilities.

All of which our term loan trajectory will shipping banks mature intensity rented tree on books.

I should also mentioned that we already completed all covenants on north Deps facilities.

In the PML the comp initials truly burdens opex cost, including Drydockings cost for not scheduled nonrecurring incidents on seed to extended monitors the running opex will slightly though compared to previous quarter. Despite operational challenges related to the core with 19.

Daily running Opex ended up 5200 per day for Panamaxes and 5900 per day for Capes.

Like the previous quarter Drydocking activity was high in the pure into first quarter, despite challenges related to the spend a minute.

They make.

And that's to complete all scheduled dry docking with limited the nice unlimited extra cost. It did look at the possibility to postpone some scrubber installations due to the prevailing market conditions, both for the freight but also the fact that the spread between HFO and compliance as narrow.

Good equipment was already bought and on the installation was plants along with the regular lost relate to dry docked and by that we decided to complete the installations schedule.

And no wolf schedule.

Scrubber installations are completed and the company has not made any decisions for further installations.

Scheduled drydocking activity going forward.

We'll be significantly lower than in the previous periods as only five vessels remain to be docs during rest of this year.

My presentation, and I hand over divert to Nick.

To take you through the markets. Thank you.

So looking at the.

The market and the near term, Okay look as mentioned in the introduction the quarter was heavily impacted by the covert pandemic. They merchants off the virus or coincided with what a seasonally the weakest period off the year, creating a near to perfect storm.

As it appears on the graph.

Lets station fell dramatically to our 80% putting the freight under pressure.

One number of regions for the drop.

The Brazilian iron ore exports to begin with decline to the lowest level seen since 2013. The decline was that due to a combination heavy rainfall beyond what is known for the season and maintenance costs as the cobot spread this also impacted negatively.

With demand across the world disappearing almost overnight the steep producing countries workforce to reduce the output to particularly at the European steel producers were hit Hot but also the Japanese Korean produces hats and all that production naturally would you steel output introduce them on services.

The last thrive on the demand side once upon two.

For Q1 was the demand for code, which also soft due to the economic slowdown.

China gradually locked down during the quarter, the power consumption reduced swell, causing the type of vessels to drop.

Finally, if we look at the supply side the delivery of 31 capes during the quarter also did exert some downward pressure on freight so all in all the quarter was a quarter of headwind.

And we of course habit to put this behind us, but it's also a quote on which we are satisfied with having managed to deliver a positive eat EBITDA as Ted just the outlined.

If we turn the page.

So the next slide.

And we look at the outlooks for that.

I have a shipping it then of course, we already well into Q2. Thus we can conclude that we had entirely out of whats yet the negative trend that began in Q1 and that just described.

It's not completely over with and we are yet to see sustainable earnings into two up until now.

That said, we are beginning to see science that I, indicating we on the road to recovery not only because we answering what has become the strongest part of the second year.

Okay, great spreads have been strong.

In the eight out of 10 years.

Also in other regions across to have a certain optimism first and foremost the covance I'm seeing has begun to release its grip and we expect a gradual return of GDP growth and.

This is of course being aided by increased activity in fiscal stimulus packages.

Last week, Ida and launched a infrastructure focused stimulus package standing at 6006 to 7 billion, it's almost 20% less than the package baking unleashed in 2008 in the wake up the collapse. The Lehman brothers on obviously this would have a positive effect on steel demand and as and when the fraud as and when started the infrastructure projects are sanctioned.

It's also worth noticing that bodice updated production figures.

For the remainder of the year is about 40% above what was exported in Q1.

As the rain season ended in April we have seen in cost increase in export volumes and we saw also almost immediate positive reaction for the Cape rates, which of course historically have enjoyed high correlation with the Brazilian iron ore exports.

We expect to the positive development in iron ore exports from Brazil to continue and we see that's an important driver for potential recovery.

With iron ore stockpiles in China, relatively low and steel prices high the person is have a lot of incentive to get the export moving.

If we look at the outlook for the supply side and we.

Turning to page.

Then it also looks relatively positive.

Flux fall the remained off the year as assessed to be around 6%. However, the net growth in the fleet would be less given that its commitment to scrap ptwenty five vlccs, but also the cost of agenda acceleration of scrapping asset additional scrapping countries are opening up again, having been close.

During the cobot.

Finally, we do expect to see Slippages in the deliveries due to Kogut. So we don't see the net growth in Twentytwenty as I said.

If we look into 20 to 21, we're right now looking at a very modest order book just around 3.2%.

It's a important in this connection so on and that if you auto business today. It will not be delivered defaults went to 22, so that would be normal additions to the fleet supply for next year.

With an aging fleet and bunker prices, increasing making older tons less competitive.

Fast grabbing potential next year, and we expect to see demand growth outstrip supply growth.

From 20 to 22 and onwards, well, but translate into specifically the order book stands at opened 9% of the fleet and of course, yes, but also to be placed but given the uncertain situation. We have right now and most importantly, the question hang over what would be the future technology, we do not expect the order book just well.

So all in all the short one.

Let's call it a onto the ended the year, we are seeing signs that we have bottom up for the longer on one to two years, we see the market improving further as the world normalizes and the supply side growing at a slow pace.

Starting to.

Page to the loss.

And.

Our DSD then I think it's important to remember and underline that Golden Ocean decide to combat climate changes has not changed despite the challenging markets.

Although shipping is the most efficient formal transportation of goods and dry cock vessels belong to the best in class when it comes to Cotwo emissions, we cannot use that an excuse for not acting.

And Golden Ocean, we believe sustainability would be one of the main driver separate churn in the years to con.

We are convinced that improving energy efficiency, reducing emissions will provide us a boat and.

Economic and competitive advantages.

With that pop up just any is do you report actually for the second year running so provide investors banks and other stakeholders with easy access to this very important non financial information.

The report is based on internationally recognized that outside methodologies and it allows everyone to follow efforts in reducing our carbon footprint.

It's important to remember that is just not just about battling climate change and as addressing sustainability in a broader perspective, we have identified for sustainability goals.

We believe you Ed Yuen sustainability goes by we believe Golden Ocean could contribute.

These are climate action piece justice and strong institutions.

I flow water at industry innovation and infrastructure.

These goals echoes the types of industry product and the go to represent materials, which we monitor.

As mentioned earlier.

The report can be fine on our website and we encourage everyone to downloaded Reid.

This concludes todays presentation.

Thank you for listening we will now go to the Q, an ace session I would have to work back to the mediator.

Sure.

Okay.

Right.

Thank you.

Okay.

If you published.

Question.

Your first question today comes from the line of Gregory.

Thank you.

So like going through the.

You kind of you look that the cash the cash flows through the quarter.

You highlighted the scrubber funding.

Now a lot of your competitors have been financing their scrubbers with debt.

It did it looked like you did that during the quarter with that.

The scrubber installations.

Now that those are our in is that an option where it where.

You'd be able to borrow against those scrubbers just as we think about you know as we look at Q2 based on where rates are we're looking at another.

Clearly at another challenging quarter arm and maybe challenging back half of the year. So just trying to understand what levers the company has to kind of increase.

Cash and lower liquidity.

Yes, Hi, Greg.

As you can see from the cash flow, we have executed finance helpful to transitory scrubber, it's less than we have fine.

Line.

From the bank facilities.

Good draw 80 million in this year and remaining.

And now and in previous quarter.

Also find us finance leases.

17.5 million for this afternoon.

Since we have actually partner.

The total gentry.

But the rest is taken by by equity.

So.

So we have actually never rest on there.

During the quarter.

Okay. So thats not so then okay. So then as we think about the market oriented right now I mean clearly.

Slash the dividend.

We're kind of hunkering down.

Position.

What others are there other how should we be thinking about is like I said I mean rates.

Great serve challenging it looks like we're going to be space in another.

Cash flow.

Cash is going to continue to triple lower here through the summer.

Just kind of curious what else the company can do like is or is there potential for asset sales.

I know you have debt refinancing you kind of alluded to the fact that you want to do that in advance is there the potential to.

When this route financing whenever it starts to expand upon that I'd.

Bar or more than you will be paying down just kind of trying to understand.

Yes, what the company can do to kind of in inject some more liquidity in the balance sheet.

And I'll just start with that.

Well there to be it's always have to have very limited capex going forward. So it's kind of running running capex, but as you say in.

I will turn at Bristol.

Ken in order to increase and preserve our cash position.

And obviously cutting the dividend this is all of them.

And then maybe we'll also look into the.

Various financing and other other means to submit all else being able to be too specific on that.

As of today of course.

Okay. Okay, Great and then just on just on the macro clearly you alluded Hey. This is this is part of the you know this is a little bit counter seasonal.

It's been very public that ballet has not been.

You know for various issues have been non have been underproducing relative to their expectations.

You will see when valley is able to come back online enrolling increase production, but.

Barring their ability because.

Whether its kogut issues or other issues.

Where could we see other pockets of additional seaborne iron ore coming into the market.

Is that something that.

Where could we see those pockets and just given where iron ore prices are.

Are you hearing about the acceleration of Oh.

Production from maybe facilities that were shot or at all or or or other I'm, just trying to understand where we could maybe see some incremental.

Man for Iron ore, just given the fact that valet.

Really has been underperforming its production targets at least.

Through the first I guess five months since 2020.

Thank you for that.

I think to see a meaningful recovery up the market, we really need to have bought it.

Exporting and whether that pockets.

Elsewhere that could could Adas I'd like to.

Maybe have Thomas.

Have a comment on that.

Sure. Thank you think if one of the question I think of that the Canada is obviously.

Place, where we can see already.

More Cogs was unusual in the these potential bad for an increase on massport doled out or no.

It would be a compromise as well it's important for our market seems to not quite long thrown told all you socio tonnage from the Atlantic market West Africa potentially.

Would be some upside from.

From that although we haven't seen that into markets led to of course with those.

Today's price as you said the assembled the operation that has been shut down I mean, not here they are folks to two stopped up again.

Yes, absolutely correctly said that fee good values that clearly and.

We need violet backend.

Seasonality on the wherever should be over.

I don't have I don't see is an issue of course, we don't know really what is going to happen, but data will the cats for them to come back.

Normally they they are coming back.

This time, so that's a situation right now.

Okay. Thank you very much for the time today.

Thank you.

Your next question comes from the line of J maximum value.

Page.

Hi, good morning, gentlemen, thanks for taking my questions.

Good morning.

Thank you.

So first thing I wanted to address is we're in a very challenging capesize market hopefully hopefully the rates will start to come up a little bit.

As we're looking at modeling your cash flows going forward I know you normally don't give guidance on a percent fixed going forward for the quarter, but I also know you have eco vessels and you've completed your scrubber programs, you're likely to outperform the benchmark rates on how can we think about the current spread for the scrubbers in this environment and all.

So for those eco vessels that like 2000, 3000, 4000, what's the sort of spread that you you hope to achieve this quarter.

Yeah. That's that's a good good question as you say nominally we don't give guidance and we would also like to a what that's a day.

However, as you correctly pointed out pollo vessels are generally speaking and Martin than many of them have escravos on both so what we see at the moment is that of course, there for what curves.

We can we can outperform the them because a follow up a lot business, but.

Spread.

To talk about that we would probably pick at around 3000 to 5000 the dollar.

But of course, it's a very moving target and depends on actually achieved the bunkering. It depends on the manufacturers so to put it the so to put a fixed number on that I cannot do but but this is a range that at least be operating with the at the moment.

Definitely makes sense, what will pencil and three to 5000 that NCR that turns out.

Greg already addressed this question a little bit, but looking at your credit facility that matures in March of 2021.

I know you can't speak with certainty at this point, but is the primary plan to replace that with a similar facility, where do you think you'll need to tap into a lease or sort of alternative financing for that one.

Yeah, you bet to Gulf, South, it's a bit too early.

To talk about that and you actually also think it's too.

Early to start given the situation you haven't three new started to get it.

Close to a year ahead of us on given all the other uncertainty in the world.

We are facing both the both in our market, but also in other markets on the banks I think that have not enough on the place so to start to discuss stuck in a meaningful way already now or that's a bit too early so so I think we just have to come back to that.

But we have a local so explore various.

Options for hope to finance, the or refinance those vessels.

Definitely definitely understandable, it's a little early but good luck to that thanks for your time today gentlemen.

Q.

Thank you.

Next question comes from the line.

Style JBG.

Thank you.

Good afternoon.

[music].

The first question I had was on the impairment.

Yeah.

And this Walker I mean, you book this on all the lead the vessels was there any specific reasons for that.

Or why wasn't that sort of applies to our own buses.

Well that's a.

Basically follow up following U.S. GAAP accounting standards for this.

These matters on all our old vessels, they well we sold at the indicators.

As a testament to do basically into indicate this legacy that solar due to the drop in the market on dropping the in the market cap.

Indicates this was there so it had to do to test heads.

On the and all the old vessels they have amount that's too.

Or that passed the test on the book value, but these lease that those are they didn't.

Pass the test.

I don't quite Toro test so thats why its ended up on on the home with at least.

And thats, mostly to do it it's shorter remaining lifetime of.

The leases that installed.

The same but it's.

With that both in the low.

Okay, Okay gossip out of them on a I'm in the looking at the market is going forward are busy.

You don't the on behind the fact that it's challenging so long.

In terms of maybe adding some.

Coverage at levels that the you know what they around or.

Your cash breakeven or what are your thoughts and argues that are going to.

Huh.

And then their latest bookmark that or Oh, how are you thinking about sort of bridging the weak market.

Yeah, Thanks for that.

Across the David Press ended Q1, but we have been standing still in Q2, and we had that that a little bit up a recovery.

In the last couple of weeks and the.

Without saying too much I can say that we have taken the opportunity to to book in the certain coverage at levels above our.

Our cash breakeven and we would continue to do so as and when we see that is it is something that makes sense.

It's also weigh up of course secure in cash and so we would take an opportunistic approach to that and the we don't have a strategy that is a justice, but we would try and the and manage.

As and when we see opportunities.

And on your plans to sort of look out of this and on the liquid that the injections.

I would assume that they are looking at all the available options, but the are there and investors in your flood that are that are unencumbered.

Excuse me.

That order don't they don't want have secured debt.

To them.

No all oral vessels are a secured that that's a final.

Only true or.

Leases that we did though.

That's fine.

Terminals for during November.

Okay. So everything is placements going out there okay.

Yes.

Okay. Thank you.

Yes.

No further questions if you wish to continue.

Yeah, No that will then conclude today's <unk> session. We thank you for the interest in advanced guest and.

Well go notion and though we and we look forward to to see later, thank you very much.

Thank you for Jason settlement that does conclude your call for today. Thank you for participating and you may now disconnect.

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No.

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