Q2 2020 Golden Ocean Group Ltd Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the 2020 Golden Ocean group LTD earnings conference call at this time. All participants are in a listen-only. Ask her to speak with the presentation. There will be a question-and-answer session to ask a question during the session. You will need to press star one new telephone. I must advise you to this conference being recorded today. I would not like to have a conference with your first Speaker today mister or Rick Anderson. Thank you, please go ahead sir.

Thank you. I'll write them. Let me stop by saying it's wonderful to see the interest in Golden oceans to release. Thank you for that. My name is Rick Anderson. I'm the CEO wage. And today I have with me. I will see you and Thomas Amino Chief commercial officer.

We will keep the presentations short and focused in a moment. I will talk you through the highlights for the quarter here after. Would provide details on our financial results. I will round off the market update Thursday or the presentation with the market update before talking briefly about our coverage strategy and cast generation potential after the presentation. We look forward to welcoming any questions that you may have thought. So without further Ado. Let's have a look at the highlights.

The quarter ended with a 41.3 million dollar loss needless to say it's not satisfying for me to sit here today and deliver a negative result. But like many companies across various Industries. Our Market was severely impacted by covid-19.

Just it if it was 4.2 million.

On a more happy note. We completed the final eight of 23 plant scrubber installations. It means that as of today we have no more expenses relating to scrub installations and only took a few dry docking cost left and all of the driver vehicles are towards the back end of the year.

During the third quarter the market increased significantly and we utilize this Market strength to secure additional cover most of it for the remainder of the year, but also some of the cover into next year off. It means that as of today we have 38% of the capesize vessels covered at $18,800 per day and 56% of our panamax vessels covered at $14,900 per day.

As a guidance for Q3 so far. We have achieved $17,900 for 74% of our capesize and off $12,900.92 off our panamax business.

Finally worth mentioning for this quota. We joined the getting to zero Coalition and Golden Ocean. We are committing very committed in fact to bring down emissions. But we also realize that we cannot get this in a meaningful way without cooperating with others who shout our Ambitions. That's why we have joined the Coalition for those who are not familiar with the getting to zero Coalition. It brings together 810 companies from across the shipping value chain as well as governments. The Coalition is working on the very ambitious goal of getting zero-emission vessels into operations before two thousand and thirty $20,030.

We are naturally looking very much forward to working in the Coalition and to work on decarbonizing our industry.

With those words, I will hand the report on to pay for the financials.

Thank you. Rich as as Manson's net p&l for the quarter was a loss of 41.3 million. This is a significant Improvement compared to previous quarter of 168.8 million in Los this does you know that that will significantly impacted by non-cash items including impairments and mark-to-market losses on us. It's just right patches.

Operating Revenue fell by 26.8 million mainly due to the continuation of a big Market that continued into the from the previous quarter the strengthening of the market towards the end of the quarter had a limited effect on second quarter, but should positively impact third-quarter results lower Market rates and lower trading activity. Also led to another reduction of wire too expensive or 12.8 million and reduction or shorter higher of 4.7 million.

Operating expenses including drydock and estimated Opex and short-term lease in vessels was 44.7 Million for the quarter. This is Dawn from 55.5 million in previous quarter. The team was comprised of two point nine million in reduced drydock expenses and six hundred thousand degrees and estimated effects on these vessels effectively the running old pics on our own Fleet decreased by 7.3 million compared to previous quarter some of this relates to delayed crew changes caused by the covid-19 and they make and the expect these expenses to increase in the short-term as crews are currently more difficult and costly than under normal circumstances.

GNA came in at three point four million for the quarter a slight increase compared to previous quarter.

Depreciation decreased by two million is mainly due to lower asset values following the ninety four point two million impairment on these vessels that we took in previous quarter.

Next financial expenses. We're down by one point seven million mainly due to lower labor rates or floating deaths.

Us interest rates continue to drop during the quarter and the company books an unrealized loss of 4.4 million related to our portfolio or interest rates headsets offsetting this loss. We booked a game of two point six million or my face and one point four million on Bunker Hedges. We also booked on unrealized loss of two point two million related to a shareholding in scope Scorpio bulkers and awoke 5.2 million related to Associated companies.

Just a bit the a was 4.2 million for the quarter and we achieved the tce per day 8792 across the entire fleet compared to $11,000 a month to 6 for the previous quarter.

moving on to the cash flow

the company ended the quarter with hundred and twenty eight point four million in cash and the cash room from operation was sixteen million. This had a positive impact from positive change in our Capital during the quarter Swiss Marine repaid 5.4 million or 50% of the shareholder loan and the company made Regular principal payments of depth of 23.4 million and in addition, we paid 15.1 million on least vessels.

Investments during the quarter mainly relate to the final scrubber installations and amounted to 7.2 million following these changes catch at the end of the quarter of 204.1 million. This includes restricted cash and it's a decrease of 23.5. 24.3 million from the start of the quarter going forward. The company had no significant Capital commitment. We have limited drydock commitments and for the remainder of the year and given the current strength in the market. We expect the strength no cash position significantly over the next month.

Moving on to the balance sheet. If you look at a that it's worth mentioning that we during the quarter had changed or accounting principles related to hold down the cash cash required to cover covenants on a loan agreement is now booked as free cash there as it was previously booked as restricted short-term restricted for install within the next twelve months and long-term restricted for a long-term debt at this cash is not legally restricted and is available cash for the company. We think this method provides investors and analysts that better transparency. It's also in line with most other shipping companies record minimum cash requirements and the facilities restricted cash is a separate line in our balance sheet and currently relates to Public Health as security for interest rate swaps and derivatives Trading.

Short-term debts includes the full outstanding amount on one roll own facilities and facility financing 14 capesize vessels that matures on Thursday, March 31st, 2021, and we expect to refinance that facility Well I had for maturity.

At the end of the quarter the companies book Equity most 48%

Looking at the credit facilities then in addition to the one previously mentioned that will be refinanced with in March next year. The the remaining facilities are Term Loan with reputable shipping banks that matures in 2023 and later.

And my presentation and a hand over the word to Amazon.

Thank you. So let's have a quick look at what haven't been in Q2 before we turn the attention to the outlooks as mentioned in the instruction market conditions for March second quarter were severely impacted by covert the quarter started with a pause to the economy economic activity in countries across the world. This was on top of the lockdown. We saw in China for March the first quarter so really difficult conditions altogether, which of course also were reflected in the rates moving through the second quarter activity began to resume in China as Lockdown lifted across the country this led to the start of a quite dramatic recovery and drive Park rates, which was driven mainly by a sharp increase in Iraq oil exports into China, but also offer a lesser extent covet related logistical issues that continue to cause delays and bottlenecks primarily in the Chinese ports.

China siren import Rose almost 19% in the second quarter compared to the same for the last year and in fact Imports reached the second highest level off.

In this connection, it's interesting to point out that most of the Imports came from Australia rather than Brazil. So in other words short-haul voyages the ceiling export volumes decreased as the country struggle to achieve independent a MC looking forward and I'll talk about this in a second. We expect exports to increase our procedure which will naturally benefit the terminal demand significant wage.

so any

to page eleven

and looking at the market Outlook starting with the supply growth. It is fair to say that the growth is slowing down fast. That's been a quite quite a fast year rest of the month. So far this year the first six months saw Thirty capes crap and to provide some context around that number 29 capes were scrapped for the full of 2019 and only eighteen thousand Swiss crepes in 2018. We have to remember that scrap prices have been blue and grabbing capacity in general has been reduced due to restrictions relating to the pandemic. So it's just a fairly good scrapping year so far and it's a trend. We hope to continue throughout the year.

On back of that and a very low auto book The Vessel Supply pictures clearly improving that will be further deliveries this year. Yes, of course, but that would also be an offsetting effect from scrapping wage growth begins to slow in 2021. And in 2022. We see the lowest Fleet growth in over a decade and ninety. This is before we have factored in the sensor fault for the Springs bath.

All in all will say that the auto-pay is that historically low and we do not expect many new orders financing is not really available and perhaps I think this is more important than a major major question marks off, but what future technologies will become widely adopted competitive. And also I'm a 20 30 compliant month.

If we turn the page to slide number 13 and look at the other side of the equation the demand side then we have here the Pittsburgh GDP growth. It's one of the most important determinants for the demand of dry cargo ships.

We all of course know the 2020 will not be a good year for GDP growth. But 20-21 is starting to look quite promising based on various forecasts including the one that we have right here in front of us from IMF. I'm expects the TDP Global GDP growth to increase by 5.4% next year, which is quite a recovery from the almost -5 that they expect this year. What is the very noticeable or important to note in this connection is that two of the world's largest importers or tripod Commodities dog named the china-india, I expecting expected to grow well above that at 8.2 and 6.0% respectively.

Always uncertainties in these forecasts and and other sources may have different views but a recovery led by China and India would naturally be very well received by the drive belt months and now it looks to be the case.

So if we're trying to slide the page and look at the page Fourteen and we have summarized our Market view here as it appears, we expect the continuation of the reason strong markets that we have seen so far to continue until the end of the year and and also into next this is some backup unprecedented Global stimulus packages.

Chase after the last major recession stimulus money will lead to infrastructure Investments and a pickup in industrial activity. The result would be a greater demand for iron-on code the two primary driver Chicago's puts any particular 3 to iron or we expect the recovery of lost Brazil in export will lead to increased sunlight as many of you may recall the production was impacted by an unanticipated and highly regrettable event in early 2019. When a dam collapsed at the volume on in Brazil it led to a severe downsizing of Dachshunds. We do not see that Dam collapse wearing negatively on the Brazilian production to the same extent any longer and the ballot reach even the low span of that guidance, which we are both positive is is is is achievable then we are looking at almost 50% increase in volume out of Brazil from the first half of this year to the cellphone.

It's a very significant volumes. Finally the fleet grow Supply Outlook is positive. I just talked about the fact it is so positive. This is positive and has been for years generally speaking is hard to imagine given what has transpired since the start of the year, but 2020 was shaping up to be a very strong year of a tripod shipping naturally Engelbert and the world changed everything but some very positive on the line factors have not gone away.

Think it would be unwise man if it didn't provide a disclaimer saying that of course, there's still a lot of uncertainty out there. We don't know what will happen be covered or if all the black swans will appear and that's why we've taken out coverage. But the the same time we are clearly optimistic on behalf of the segment and we believe with good reason.

Turning to the last slide for today. I will talk a bit about our cash flow generation potential and our balance chattering approach very comfortable to say in the short term and short term in until the end of the year that our results would be significantly better than the first half off and on top of that that we are in a good position to further build our cash balances when the market began to pick up during to 3, we secured some profitable charters for capesize and Parrish has to login some Castro's at good levels. Well above break-even.

In the meantime and we are happy about that the market stayed strong and we have a large amount of spot exposure remaining while this definitely is not the typical year. The second half is generally the strongest drive or rates and we expect the same will happen this year.

In some sense, you can say it's already happened because we are seeing today capesize rates north of 20K.

If you look at the right-hand side of the garage clear that over the last five quarters, we have sent a lot of cash out in connection with capex Bastrop a program that is now behind us which can repair the fit. Our cash balance is a go-forward. Also 20/20 Drive dogs are more or less at least out of the way, which will give combined a good Runway throughout the end of the year.

So all-in-all, we believe we are.

Positive position very well to take advantage of the anticipated strong markets. We see in front of us.

Would that I will hand the call over to the operator and he will take care of the rest and we are ready to take any questions you may have. Thank you very much.

Did you sign gentleman? If you do need to ask a question at this time, please press star one on your telephone keypad. Once again, install one on your telephone keypad to register your question and the hash upon key to Thursday. We have one question coming from the line of Gregory Lewis. Please go ahead with your question and answer your company's name.

Yes, I thank you and good afternoon. I guess I just had a few questions the first thing, you know clearly you guys laid out, you know somewhat of a bullish outlook on the market heading into the back half of this year and next year looking at asset prices. It looks like they'll come down a little bit it should we be back just as I think about those two things. I mean should we be thinking that I mean is this an opportunity for Golden Ocean to grow its Fleet at this point or or kind of just kind of curious, you know, just, you know, just giving some of your comments how you think about positioning the company for the next. It sounds like, you know, twelve twelve to twenty-four months under the under that positive backdrop.

Yeah, thank you for the question. I think that we will always be looking to do good S&P deals if they are available. Of course, we have the same consideration towards the regulations from IMO towards twenty Thirty. So it's a balance between trying to find attractive views of of modern Chinese primarily wage is looking at new technology, but in general, yes, we are ready to to go out. And and invest if we believe we can make a deal that will add to the value of the company.

Okay, and just as we think about the market right now, I mean, I guess it's slow. It's summertime. Are there are there I mean do you see you know, if you were to gauge the the activity in the in the office sales and purchases Market are there I mean are their vessels for sale or is it one of these things where you know since prices are down. I don't know five 10% since the start of the Year kind of there's you know would would you characterize it a you know, well, how would you kind of characterize the liquidity in the in the second hand Market? I think that the liquidity what is what we see in this regards to the quality is mainly that it's a older Chinese that is being circulated for sale. Well as more of the modern tonnage is is is held back because as you as you just pointed out the spotter doing so good and perhaps the values are somewhat underestimated at the moment. So we see mostly credit see on the on the on the on the older Chinese.

Okay, great. And then just another one just kind of as as as we think about Cole, you know, you kind of mention some comments around, you know, hi mode 2 20-13 a you know kind of talking about the outlook for for China and India, you know, I mean how much I mean I guess I guess the question would be you know, year-to-date realizing that you know, this is a dead deer hard year for everybody because of the you know, the coronavirus, you know, I mean you guys have vessels that move a lot of coal. Like how are you thinking about the outlook for Colby over the next couple of years? She should we be thinking that you know, we could see an uptick in in told them and over the next couple of years really just some of these, you know some of these economies around the world could get get going higher or I mean you're you're you're you know, you're on your way, but you're you know next next door to the continent of Europe. I mean, it seems like all continues to suck.

Challenges I'm just kind of curious. You know how you're thinking about the call markets over the next couple of years.

Yeah, we think in general that it's too soon to the code that as a viable commodity. Absolutely. Of demand in in in in life and and and and China. I mean China is the biggest producer of coal altogether, of course the inputs there are a little bit politically regulated. But overall, we we expect actual growth in the in the in the import volumes both to India and China over the coming years coal is not going to be in the energy mix for us. It's definitely being out faced and I think that's a good thing but in the short-term, let's say the next two three four years. It still has a has a has an important role to play in a in in Dropbox shipping. We have to remember one thing. Of course on that is that the ton mile from cold is nowhere near that of iron ore ever known as the driver, of course in all of this.

But you can you can say that.

Code is kind of an icing on the cake. I mean we have seen Cape rates go from $2,000 to $35 without seeing any cold really moving. So, of course if we can go get cold back to to talk to some extent it would be it would be a good extra Catalyst for the for the K braids.

Okay, and then just I guess I'll just you know, just we're talking talking about call you kind of touched on something that we've seen throughout the year. We're we're taking it it's kind of money wise but but like for most of the Year capes really have outperformed some of the smaller vessels, you know, or at least coming out of the pandemic in in in kind of a spring break. Why do you think that was any kind of color realizing you guys primarily operate with bigger shifts? But like it seemed like The Capes were really out-performing just kind of curious if you guys had any any view around that.

Are you calling?

And capes and the panamax is all you're comparing capes to the handles and Ultra Max Ultra Max Max is I mean, I mean realizing that panamax is have continued to have converged on Kate's over the over a month or two, but it seems like you know over the last climb of three or four months the smaller vessels even including the panamax it seem to have outperformed what you mentioned keeps went to $30,000 a day. It seemed like they were really out-performing the the smaller vessels just kind of is just kind of if you could provide a little bit more color around that would be helpful. I can try and maybe it's almost Samina would also have a few words on this but but what I can say is that the way we see the world is that there is a large upside also lots of volatility but lots of upside on the on the larger segment. You could say the cave sort of establishes the ceiling for the for the fog.

For the smaller segments, that's also why we have deliberately taken out more coverage on our panel Max's and keep a larger exposure to the to the to the to the caves. So I think it's natural. We see this in in in all the segments as well that that exercise vessels have the largest of time and we expect that to to continue to be the case cause I'm not sure if that answers your question and maybe Thomas you have some some some Ultra put on this but but yeah little bit let me know if if there's a I think or sorry, thank you for your question. I think it's is as well in part relevant to what we mentioned before on the other end call on on Cape 85% What we move is is is I don't know, right and therefore, uh, we are we are mid not really, uh affected about the call being slow wise dead.

Bottom of the mixer is still adding some some more coal on it. So clearly that's one of the reason why the cape has been moved faster and higher compared with the smaller size email in general. But I mean lately we've seen that they actually the Panama sector has been uh moving quite often be higher thanks to strong Demand on the grain from both east coast of America and the u.s. Gas and catching up on the spread compared with the with the cape.

Okay, perfect. Hey, thank you very much for the time today.

You're welcome.

We have another question coming from the line. Of course, and please go ahead with your question and all of your company's name.

Yes. Hello. I was wondering have you heard and the talk about a new building over brings in the market to give them off the uncertainty around fuel outer can Etc or are you considering doing any new buildings?

Yeah, I can maybe it's almost can can can follow up but I can say that we are in a wait-and-see position. I want to say wait-and-see position. I mean not in a passive inactive way. We are monitoring very closely. The technologies that are emerging now the industry is running faster than it used to and I think that's going to be many ways to to essentially twenty Thirty pounds, which is what we are we are aiming at and even further down the road. Of course, we have 2050 we have to consider as well. So right now there's not one widely adopted technology or two of them. And and and and we are we are very conscious of the fact that we have to be sure that we choose the right technology when we go to the to the parts arrive Thursday. We are not we are not we are not they're ready to push the push the button and I think that will go for a lot of other owners think they will see the same and and that's what I talked about when when when we talked about this page.

Growth that is slowing down. The other owners were probably sit with the same headache as as as as as we have so, you know in a way that is good with us to ordering maybe Thomas you can get some some some some comments on we know that the BHP have been in the market for 10. But but other than that, it's not much we're picking up but but but some of maybe you can you can throw a few words and letters. Well, yeah. No, absolutely. As you said, I think the you ordering has been very very slow that have been some rumors about Merv breed l&g vessel Bina order or bed or letter of of intended being signed for few of those vessels. But apart from that has been very wage as low for the reason that you highlighted before so really all the open is ordering site with buildings that have been very little activity along

Okay, thank you. Then a little bit on scrapping. I mean you are very right in saying that scrapping has been a big factor earlier this year, but with your current, you know rate expectations of a bully second of uh of the Year see a little bunker prices. Why why why should people start typing vessels big time? I mean, it's an option. Yeah. No. I also don't think I set that. I if I did then what I meant was that it has been a good year for scrapping so far off. The tendency will will continue whether it will okay. Let's see, I agree we are strong market now, we have good outlooks. It's going to be scrapping that's going to be driving drive up. This is going to be the iron oil imports into China. So whether there is a a lot of scrapping more from from from today and onwards, it's not God.

determinant of of of the market but but we still expect because there are businesses that are

That are that are older that that will be scrapping also in a strong Market, but of course it will be less.

Okay, thank you. And then if I know I guess in question to Thomas in terms of the market, I mean we saw a record volumes going into a war and all going to China in July. How is that looking now? And what what will it take to you know list the market to say the cape Market to 30,000 day or or I'm about to do you see any signs that that will be happening soon?

Thank you for the question. Well, they keep Market has been very volatile and we are quite often. It's for the second half of the year. So we might see who knows the number that Spike could do $50,000. They they trained in Brazil a sport base. And from Brazil is quite strong. Uh and West Australian well is moving their moving as operators and the shippers are moving as much as they can. So with the inefficiency coming from the fleet off because of the crew changes and that we are seeing now and and that's all having to quarantine. So making basically trip longer than what they were before. They sold more compromise. There is the possibility for the market to move up to another another step. So back to the $30,000 surcharge.

The possibilities congestion is pretty high in China now, so that is something that of course we should monitor and I mean potentially there is some bad weather coming off into China that would potentially increase the congestion and waiting time for discharging. So so that could be another positive factor on on that. So as usual is not only one that goes but you need to have a convergence of multiple efforts to push the market to $30,000 so it could well happen. We hope is happening across and Thursday and the market is with the demand or narrow nor and as well the increased don't permit that we see in the market is set for that to hopefully happen.

Okay, thank you. That's all for me.

Once again, it is and gentlemen to register your question. You can press the oil then one on your telephone keypad. And to cancel your question. You can press the open key. We have another question coming from the life. Please go ahead with your question and answer your company's name.

Good morning. Gentlemen, thank you for taking my question. You've used car market strength to fix your considerable amount of remaining twenty twenty trading days, and I was wondering if you're looking into fixing a large portion of your 2021 open days.

Thank you for the question. We will keep a balance approached also through 2021. That is our starting point. I do believe as we have it sold today at this call that the market is going to be strong. So we will we will we will see as and when is the right time we feel that the balance for now is Thursday is good for for the remainder of the year. We also see normally a weak first-quarter in in drag ago and it means that right now there's a quite a discount on Thursday on the T sea levels for q1. That means we don't think it's right the right time to move but as and when we get closer to 20 21 and as and when we see the opportunities, we will definitely continue to take money off the table when we feel that the the the rates are at the right level.

All right. That's helpful. May second question is related to your small self position. How do you currently be with?

Yeah, it's a position where I've had for quite some time. And yeah, it's for for for discussion. What we will do with that position. It is so insignificant now that it doesn't really impact our results or or in general our business. So so it's a it's a it's a relatively small investment.

I don't have an answer for you today. What we will do with the with that.

No problem. Thank you very much guys. Thank you.

We appear to have no further questions at this point find the conference back to you, sir.

All right, it concludes today's session. Thank you for attending gold Notions the second quarter results. If you have any other questions, you always need to contact my cell phone repair, Thank you very much for today and have a nice day. Thank you.

Ladies and gentlemen, thank you for your participation today. This concludes today's conference call. You may now disconnect your lines. Thank you.

Dead dead dead.