Q3 2020 Golden Ocean Group Ltd Earnings Call

Welcome to the Q3 2020 Golden Ocean Group Limited earnings Conference call. Please continue the standby conference will the getting very shortly you'd be on music hold until the call begins.

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Ladies and gentlemen, thank you for standing by welcome to the Q3 Twentytwenty Golden Ocean The group limited.

Earnings Conference call at.

At this time of participants in the listen only mode. The will be a presentation. The led by question then on the section.

Yes, good question at the stage piece priest on.

And on your telephone keypad.

Must advise you the call is being recorded today Tuesday, the 19th of the Twentytwenty wed now like.

The conference of but you'll see the speaking today see other.

Please go ahead.

Good afternoon, and a warm welcome to Golden Ocean Q3 release presentation, My name sort of Gunderson I'm, the CEO of Golden Ocean.

I'm delighted to present, our results today together with the to see much of the competition CFO.

We will keep the presentation showed and focused and I'm on.

I would talk you through the highlights of the quarter.

The Peter will provide details on all for <unk>.

On a round off for the market update before talking about on corporate strategy and cash break even.

After the presentation, we look for what you're answering any questions that you may have.

In the quarter, we achieved an EBITDA of 76 million a U.S. dollar share. This for sold it in a very satisfying the profit of just shy of 40 million the.

The result was driven by strong spot chartering performance on both the Capes and Panamaxes combined with all decisions to check out and not insignificant number of teachers a fixed levels during the peaks in Q2 and again during this quarter.

I will talk more about this later on.

We also completed the report of the for the 25 million credit facility at highly attractive terms it.

Net loss, our cash breakeven wouldn't hold on $1100 per day for the vessels into the city.

On a lot of good ocean <unk> ability to secure attractively price finance for the traditional ended all of you more flexible gobank shipping a golden shipping banks and this despite of course the turbulent times we are currently facing.

As mentioned, we have again this quarter secure more fixed called the it means that as of today, we have of 73% of our Capesize vessels day, it's called the <unk> at Tortue 1750 per day, and 82% of Panamax vessels called the 12750.

Finally, we have divested our in house ship manager.

She cheap we want to focus on our core activities, which ship owning in the Panamax capes segments. So we have completed a transaction with them.

On the sales we have made a profit up three of the hop on really U.S. dollars.

Also we discontinued our commercial accounting and operational agreement with as the field regarding debt seven had the vessels. The reason for this is the same we want to focus on on coal business, which is not management of the business outside the panamax and keeps the segments.

With that I would pass the word on stupid on for the financials.

Thank you Rick.

Well the start by going through the profit the loss on slide five.

Our time charter equivalent revenue came in on the 143 million for the third quarter, which compares to six to 7 million in the second quarter.

This is the reflection of a achieved Tc rates for the Capesize ships over 19950 on.

13500 for Panamaxes, which compares to 8300 per ship per day for the Capex in Q2 on a.

I wasn't 100 for the Panamaxes in Q2.

Our total time charter equivalent rate.

Across the fleet was 17900 in Q3.

We had no drydockings this quarter.

Which compares to nine ships in the previous quarter on this obviously all the impacts the time charter revenue.

Looking at the charter hire expense this quarter.

We recorded I talked for higher expense of 20.4 million.

Which compares to 12.3 million in the previous quarter.

This is largely due to our index linked time charter in which followed the market the rates by increasing during the third quarter.

Moving over to the ship operating expenses they came in at the 43.4 million in the third quarter.

This was a lower than the previous quarter, mainly due to no dry docking costs are recorded in Q3, but this was offset by higher costs relating to.

Crew change, particularly but also other koby of 19 related cost increases.

Our DNA costs.

Were 3.1 million.

Which equals approximately 450.

Dollars per ship per day.

And this is slightly down from the previous quarter, but.

The fairly flat quarter on quarter.

We had the us or Rick mentioned, the EBITDA of 76.

Point Sevenmillion.

When you move down the <unk>, our depreciation was slightly up by 600000 due to depreciation of the ballast water treatment systems on scrubbers installed in previous quarters.

Our financing expenses.

Were down.

The two 9.8 million, which is largely due to lower LIBOR rates.

Which was down by over one percentage point during.

The third quarter look.

Looking at the our derivative of Sun for other financial.

Income or loss, we recorded the positive.

The 600000, a result, which compares to 88 million.

Loss in the previous quarter.

This is due to the net effect of positive movements in mark to market on on realizations of of the.

Derivatives.

Which is offset by a negative result.

From our our investments in the Drybulk operators Swiss Marine.

In the <unk> in the third quarter.

The net profit.

As Rick mentioned was 39 million or toward the some 77 cents per share, which compares to a loss of 40 million or 29 cents per share in Q2.

Moving to slide six.

If you look at the cash flow for the quarter, we generate the cash flow from operations of 58 million.

And we repaid a debt both through our financial leases and also our credit facilities of just of over 30 million.

On the we had a of mentioned no major investments. This this quarter's only 300000, which resulted in the cash position at the end of the quarter of <unk> hundred 31 million.

Moving to moving to slide seven.

For the because our balance sheet, we had a of mentioned the cash position of 131 million. On this includes a 28 million of restricted cash, which secures sorry, that's the sales are IRS and bunker hedging positions.

We have continued to repay debt.

For the strengthening our financial position by 30 million this quarter.

And which leads to a debt the lease liabilities at the end of the quarter of $1.2 billion.

Our total losses.

Was $2.7 billion, which leads to a equity to total assets ratio of just shy of 50%.

If you move to slide eight.

I just want to mention our our credit facility or refinancing that we did the in November.

We have signed on closed.

The a 304 million terminal on the revolving credit facility, which replaces the for the 25 million facility that the original <unk> matured in March 2021.

It is the five year the.

[noise] facility that is price that a 235 basis points.

We have been able to extend our repayment profile.

The which has a 20 year age you just did bring the repayment profile or 16 year straight on profile on this contributes to a lowering of the cash breakeven rates for these ships of above a 1000 dollar per ship per day.

We have a strong interest in the from the banking, yeah, or our banking group and the it's a consisting of the same banks the for in a safe for one bank that has to be replaced all banks are.

Part of the biggest global shipping banks in the world.

We have also included a revolving credit facility, which per now is fully drawn but will serve us the cash management tool going forward for us to save costs on manage our liquidity in the.

In the good way.

Well the Weiss of the terms in the the facility is equal to our other credit for the facilities.

And with that I'll pass the word back to you on Rick.

Thank you Peter.

Now turning the attention to the market review and outlook.

On page 10, you can see a slide showing the market developments since the Q3 2019.

What we can see the stuff the strong rebound of the market, which began in Q2 and it was driven primarily by the lifting of the locked on in China and the unprecedented stimulus package released by the Beijing government lost some of that momentum coming into Q3.

This was perhaps not surprisingly that the market took a breather, having reduced rates above 30000 thought of the day.

However, as we moved through the third quarter, we saw China I want to say on most insatiable appetite for <unk>. The import rose 13% over the same quarter last year and it wasn't in fact, the highest quarterly average import to China standing at 321 million subs.

Worth noting this connection is the increased share of imports of all the time of increasing share of imports came from Brazil, instead of Australia naturally increasing on line.

All in all this aided the market in rebounding once again in the second half of the quarter.

Looking at the outlook and turning to slide number 11, and starting with the supply side, we can see that the supply picture, it's very clearly improving.

The order book is on historical lows the growth slows down significantly next year and the other and right now the order book stands at a mere 2.7 per cent and 1.6% respectively.

Mind, you this before scrapping and the delays.

We do expect ordering to stay relatively muted chief finance is not readily available to everybody but.

But perhaps on I think this actually more important that question marks hanging over technology and future of regulations, which will encourage most players to wait with ordering.

It means that we should have at least a few years with a modest influx of vessels.

Turning the attention to the outlook and the looking at the balance out first how does that look well, we know the ptwenty trench of spend of difficult year for the global economy.

With the exception of China on lots of countries have had negative growth this year.

Rebound yet.

The IMF expects global GDP true increased by 5.2 per cent next year and that in itself is of course, the quite remarkable recovery.

But what we notice of course, the China and India two of the world's largest importer of dry bulk commodities.

Specked into the seat GDP growth well above that number of India.

The India the IMS.

IMF expects the growth of 8.8% on China, and the growth of 8.2%.

What I also of note since our last quarterly call is that the global GDP growth for cost has actually come down slightly.

Gross none of us for China, and India. However, that's actually both and we Wised up. This is of course net positive good for Drybulk.

We know that uncertainty with this for cost at all the for cost with every for cost what other color. He led by China on inject would be well received by the Drybulk markets.

Sorry, just on watch the outlook on and look at page 13, what we see is that the overall, we have a positive situation the unprecedented stimulus money the.

What's the case for the last major recession will likely lead the infrastructure investments and of pick up in the industrial occupancy.

The result would be a greater demand for iron on code the true primary drive by Congress.

With respect to iron ore production is expected to expand significantly in Brazil over the next two years you may recall, the iron ore production was impacted by the dam collapse in Brazil in early 2019, which severely hampered production this weighted on the market, but this trend outlook still have progressed.

Recovering industrial activity will likely to on the crop increase demand for coal. Therefore, we expect coach the start flowing again next year as well.

As mentioned the fleet growth supply outlook is very positive too in fact as positive as it has been for years looking into Twentytwenty one of the on it's on my demand is forecasted to outpace supply growth for the first time in the decade.

Why on certain she continues to persist as koby 19 cases have dramatically increased the the last six weeks, we are still very optimistic it all on some of you.

So I think just like not the fortune.

Looking and looking specifically at Golden Ocean, we have continued to actually of demand. It's all spot exposure to protect against downside scenarios, but while maintaining significant exposure to increases in freight rates.

We have applied the same trading strategy in Q3, as we did in Q2 and secure additional color during the peaks.

This will help us lowering the risk and increased earnings and it does actually put us in a comfortable situation well be of adequate callable at good levels. It's a bridge between now and the Q2, where we expect rates to improve.

It's important to be to emphasize that we are not looking for balance per se. Rather we are constantly assessing the market to look for opportunities to lock in cash flows without giving up too much upside.

You will also notice that we take up more cover in the stable of Panamax segment, why keep the more exposure to the Cape market, which traditionally has the largest upside.

We are also of course focused on maintaining our industry low breakeven levels.

Yep.

Just explain further low what all the cash break even this quarter.

It means that as of today, our cash break even for the capes of which 50% of scrubber fit of 13001 per.

Good day and mind, you this is including servicing the debt.

On the Panamax fleet, we have a cash breakeven of 8600.

So if the put it all together, what we see us on attractive fleet supply demand balance in the years to call on the.

That coupled with our disciplined chartering strategy low cash breakeven solid balance sheet and lots exposure to the Cape market makes us believe the Golden Ocean are in a very good position to capitalize on going forward.

That concludes today's presentation. Thank you for your attention.

We now continue to the queuing day session.

Thank you very much as a reminder, if you'd like to ask the question over the phone today. Please press star one on the telephone keypad and wait for your name to be announced you can count on the request by pressing the heskey, what's the game stopping one of your life.

Yes, the question over the phone today.

First question, we have today comes from the line of Gregory Lewis from B T G.

Go ahead.

Yes.

Yes. Thank you. Thank you and good afternoon, and thanks for taking my questions.

I guess I'd start off just wondering I mean, clearly you know walking through the slide to the end just listening to your comments about the market. It sounds to me you know my takeaway is the that your construct of on the outlook for for 2021, and even beyond that and so just as the I'd like to think about that and the potential for.

For.

Clearly you guys already have it on a sizable sleep on it but it does seem like there's opportunities to expand.

Your footprint right now there's there's there's always vessels for sale on the Drybulk market, but the there's what's maybe say there's more vessels for sale today, just kind of wondering maybe what you guys are waiting for how you're thinking about potentially expanding your footprint or or is that one of the scenarios where.

Hey, we own roughly 70 ships and this is what we think we're comfortable managing the head and we're not really interested in growing that fleet out.

Thank you for your question.

We are constantly monitoring all the opportunities I think we have true remember that we.

I had a good part of this quarter, but the.

On the we had the Q1 on Q2 of course, which were much more challenging so I'll focus on most to the bottom of.

The balance sheet.

Right to ensure that we have for the.

What can you say of sort of a ballpark should any on for seeing circumstances arise.

When the the set.

Of course, we are looking at our cabin to medication.

Ultimately on addressing debt.

We are seeing good opportunities, we also not afraid to answer the two pounds on the but they will be a question of when.

When this goes the dividends go to say.

On the balance sheet, all we reinvest.

Generally speaking I can say on the investment opportunities most of what we see at the moment is solid top and older age being pushed around and we are not so keen on investing in the in tonnage that is not margin. So does that is that a comment I'll just like to make and connect.

And with this.

Does that answer your question, yes, absolutely habits for helpful. Thank you and then just as I think about this knowing that.

There's even I guess congrats congratulations on your guys I guess now now running Golden Ocean, but but as as as I think about Golden Ocean overtime historically.

There's clearly.

Clearly the company has been able has been willing to lever up its balance sheet and I think you kind of touched on it with the cash.

On that surround yes key banks are still there, but I guess is as you think bigger picture as the the maybe the the ship when the market has evolved the end or or changing the is that kind of changed the way you think about leverage through the cycle I'd. If I was thinking about maybe how golden Ocean was.

Was managed a handful of years ago, Yeah, you know it.

It is peak leverage.

Yeah. The you envision peak leverage Meanwhile were over the next couple of years versus what it might of been a handful of years ago I'm, just kind of curious if things in the markets or.

Has has has anything changed in the way you, we think about Golden Ocean being managed from a balance sheet perspective has that evolved at all over the last couple of years.

Hi, Greg.

I think the.

The we are in the very unfortunate situation or in a day.

The market, specifically ER, which has contracted on the lot of banks have disappeared health of the market, but we.

Ample capacity on the or one of the the of the fortunate the companies to be very very much and attractive customer on the biggest shipping back. So so we are or in the sense. We have not changed our view of the we have been vocal on the previously that the.

If the target a leverage ratio of around the 55%.

Uh huh.

I think that currently are the.

The there is so much.

Lower risk appetite in the equity markets. So I don't think that the and.

And the excessive.

Leverage.

The benefit you are on the long term.

But we definitely have the capacity on our balance sheet to lever up to enter into the interest brings us actions, but the we.

We are very much focused on cash breakeven keeping our cost low and I think the it's a sensible to be able to.

And to be able to how the low cash breakeven you need to true to manage your your day.

Average for sure. So so I think its a.

I would be the I'd, rather not afraid of of levering up if the transaction to be done is right, but the I don't think we will we will lever up for for its on sales.

Okay great. Thank thank you that was super helpful. I have a nice day guys.

Thank you.

Thank you very much.

Once again, if youd like to ask the question for the thing today. Please press Star then one on your telephone keypad.

Stopping one to ask the question.

We have the follow up question here from Gregory Lewis from BTG.

<unk>.

Hey, guys, sorry about that I was going to I was trying to be polite and let other people get in bought on I guess, what I was kind of wondering is and you kind of touched on it clearly iron ore is what's going to drive the drybulk market and we can kind of watch that and see how it's developing as China's restarted, but but you did kind of mentioned coal.

And it's interesting to me because we've been doing a lot of work in and while you know for meat, but news perspective, it sounds like coal is.

Yes, I'm not going to be around yesterday, let alone you know in the years the calm, but I'm just kind of curious on realizing the call is still a big part of the Drybulk market.

How are you guys thinking about it and you have no vessels across the spectrum that the.

The small vessels mcallen large vessels move call. So just kind of curious how you're thinking about the coal market developing over the next couple of years. Thanks.

Yes. Thank you.

Within the <unk>.

We also spoke about on the last call I believe it's too early to the <unk>.

The drop quite good commodity debt, we think definitely its going to have a diminishing uh huh.

The thing that's a good thing a place in the energy mix going forward.

We still have the.

The advanced economies for lots extend instead of being dependent on cold on the cannot outpace the the coal in the in a in a few years. So what we see happening is that the coal has been basically non existing for the for this year, we expect the SBC.

Everybody on the GDP growth in both India, and China, and and relaxing presumably on the of the import quotas in China.

Oh on coal, we expect to see a cold flow snakes Ya help the the dry bulk market. We don't think its going to be the main driver, but we think it can assist the in in making the supply demand balance of all more attractive in the longer run.

And by that I mean.

Yeah, 510, 15 years on the line, yes of course, it's called the its kind of yeah, yeah, it's kind of be phased out of in Chile.

All of that I have no doubt, but for the for the short term we don't have in yen, we don't the.

We don't have been any expectations that the the code will not continue to the and important the commodity in dry cargo.

Okay, great. Thanks Super helpful guys. Once again have a great day.

Thank you Jeff.

Thank you for your met once again.

And if you don't want the question. Please press Star then one on utility.

And keep it.

Thank you very much there were no for the questions coming through for the phone to the stage.

Okay. Thank you for joining.

Thank you very much that does conclude the conference for today, but the.

But you may all disconnect.

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