Q1 2021 Golden Ocean Group Ltd Earnings Call
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Thank you for standing by on the welcome to today's Q1, 'twenty 'twenty, 1 Golden Ocean Group Earnings Conference call. At this time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star 1 on your telephone I missed it twice.
You see that this conference is being recorded today on that would now like to hand, the conference over to how do we see.
T O. Please go ahead.
Good afternoon on a warm welcome to Golden Ocean from Q1 release presentation.
My name is Oregon listen I'm, the CEO of Golden Ocean, and I'm delighted to present, our results today together with pet a few months from the Companys CFO.
In a moment I will talk you through the highlights of the quarter.
They're off to Peter will provide details on our financial results and we have around the session off with the market outlook and by discussing the company's cash flow generation potential.
After the presentation as always we look forward to answering any questions that you may have.
Q1 was eventful and had several highlights first and foremost we are satisfied with the live on delivering the best quarter in the history of Golden Ocean.
We achieved an EBITDA of $54 million and on associated net profit of $23.6 million.
We went into the quarter relatively low on fixed call them, allowing us to capture most of the market strength.
During the quarter. We also entered into agreement to acquire 15, modern dry bulk vessels and 3 new buildings for a total price of $752 million from Hayman.
At the same time, we raised 355 million in capital through a private placement.
We have already taken delivery of 3 of the acquired Cape sizes, and 3 of the Panamax vessels and we expect that the remainder of the vessels will be delivered by the end of May subject charts in your areas.
Okay.
For Q1, we reported TCE rates for the Cape sizes of 16600 per day and 14800 for the Panamax vessels.
During the quarter. We also converted 3 vessels from floating to fixed rates, taking advantage of the market strength.
The vessels on average index 115, and the achieved TCE rates reflects the solid increases we have seen and chichi levels since March.
We will continue to derisk when the market spikes.
Items for this quarter, we can advice that we have fixed 64 per cent of the capesize vessels days available at approximately 29000.
We are also fixed around 84 per cent of the Panamax vessel days at approximately 18800.
Last but not least we are delighted to resume golden Ocean proud tradition of paying out dividends and we have announced a payout of 25 cents per share.
The pay up for this quarter share, but she did in conjunction with Q4, while we hold the dividends due to the acquisition of the 18 vessels mentioned above.
It is the company's ambition and policy to return value to all shareholders through dividends of course based on investment opportunities and market conditions.
But we hope that the market will support additional payouts going forward.
With that I give the word to Peter.
Thank you Eric.
If we move to slide 5.
Oh soon Rick mentioned, we achieved Capesize TCE rates of 16600 and Panamax a T.
E rates of just below 15000 for the quarter.
And this averaged out at the total TCE rate of 15900, which is equal to achieved rates in Q4.
Our TCE revenue it came in at a 119.5 million, which is down from 125 million in the previous quarter.
On the reduction is largely due to our having 6 ships dry docked in the quarter, which resulted in a 280 day.
8 days of a fire representing approximately 3 and a half per cent of total days. If you go to the or ship operating expenses, we recorded a $48.6 million in ship operating expenses, which compares to 47.6 in Q4.
This has to do with the increase has to do with with higher dry dock costs, while the running expenses actually decreased by just below 2 million.
So if you look at the daily Opex per ship, we recorded 6300 on average for the fleet in Q1 versus 6100 in Q4, while the operating running expenses were 5006, hundreds which is $100 per day.
Below the previous quarter.
The ship operating expenses were also highly impacted by the ongoing COVID-19, pandemic, which increases the complexity and costs, particularly.
In relation to crew changes.
Quarantine hotels testing and so on.
So we expect that our once this normalizes that the Opex will come down.
On a running basis.
If we look at the administrative expenses, we see that to be a b are slightly up from Q4 with approximately 100000.
This was largely due to U S. Dollar FX movements are because we have a large part of our cost base in Norwegian kroner.
Which resulted in 130000 dollar.
Impact negatively for this quarter. In addition, we had some impacts of higher advisory fees, mainly related to our 20-F publishing.
The charter hire expense was down from 17.1 in Q4 to 13.9 in this quarter and this is mainly due to lower trading activity during Q1.
On this fluctuates also with with the index rates as we have a lot of ships out on on chartered in on on index linked the higher.
This gave us on the adjusted EBITDA for Q1 of $54.6 million.
Looking at the depreciation for the quarter, we recorded a depreciation of 26.8 million, which is slightly down from the previous quarter.
This is due to the sale of the Golden share in Golden Sagging as previously reported.
We also recorded a 4 million impairment loss on.
On the sale of the Saguenay and which compares to.
700000 payment loss in Q4 for the sale of Golden share.
On the net financial expenses, we recorded a $8.7 million.
Vs ninth 0.4, which is.
To a large extent attributed to a lower LIBOR expenses and also lower debt issuance costs quarter on quarter.
Where we refinanced a large facility in Q4 increased increasing some of the costs in Q4 on.
And in addition, the repayment of the Rcs that we have done in Q1 of 50 million.
On our derivatives and financial income sides are we recognized a very positive derivative movement from a long term interest rate swaps that we have are in our portfolio of $9 million in in Q1.
And on aggregate the derivatives position was up by the same amount versus 2.7 million in Q4.
On results from associated companies.
Which largely relates to Swiss marine AR, and AR and our joint venture with frontline and Trafigura T. F. G. Marine we recorded a positive point 7 million results versus a 1.2 million results in the in Q on Q4.
[noise] marketable securities were up by <unk>.
800000, which relate to our position in an empty or previously.
Scorpio Volcker's.
Our net profit as Rick mentioned was $23.6 million or 14 cents per share versus 25 million on.
18 cents per share.
In Q4.
Moving to slide 6.
You can see that our cash position increased by $153.4 million.
And this is.
2 large extent attributed to the private placement that be carried outs, which raised 335 million in new capital to finance the acquisition of ships from Hamlin.
If you look at our cash flow from operation. It is unusually low this quarter.
That is because it includes say 18.6 million payment for the fund installment for the 1 of the new buildings to be acquired in the transaction with him and holding which was pre positioned at the end of the quarter.
But with the ship being first delivered in mid April.
So this is recorded under other receivables and thereby are.
Reducing the operational cash flow.
In addition, we recorded a negative working capital movement, which is shown in a in an increase in receivables and also on inventory and this has to do with it.
Mainly the timing of payments of bunkers and also payment of freight as well as bolt on bolt bunker prices on freight rates.
Looking at the cash flow from financing it was positive $246 million.
And this is due to the proceeds received from the private placement of 335 million.
We will in addition in Q2 record. The subsequent offering were approximately 16 million. In addition to this.
Cash flow from financing also was reduced by repayment of debt and finance leases.
Oh total $89 million, which also includes the repayment of the Rcs revolving credit of $50 million on this facility remains available for drawing on our convenience.
Lastly.
In the Castro used in the mess months of approximately 19.9 million. This consists of a 10% deposit.
For the 15 ships that'd be acquired from Herman AR, which was totaling $64 million.
In addition, a total of 44 million payment for the new building contracts, which is less remaining installments that'd be acquired from Hammond as well.
Moving to our balance sheet on slide 7.
We can see that our cash position at the end of the quarter.
<unk> ended at 328 million.
Which also includes 19.4 billion of restricted cash which secures our.
Hedging portfolio.
Our debt and lease liabilities totaled 1.15.
Billion on.
The at the end of the quarter.
Pulling the scheduled repayment of debt on our CF repayments.
Our total assets.
And there are just below $3 billion.
And and equity ratio to total assets of approximately 58% at quarter end.
And with that I'll leave the word to you Eric.
Thank you Peter.
And with that ill turn the attention to the market outlooks, but first a quick look at what happened in Q1.
As those who follow Golden Ocean will know we have been optimistic about the recovery and dropout rates for several quarters.
And to say that our expectations have permit would be an understatement Q on Q1 turned out to be the best quarter in more than a decade.
Remember that first quarter per year is usually the weakest due to seasonal factors, while the sharp increase in rates last year was almost entirely driven by the reopening of the Chinese economy.
The trade is now recovering more broadly as vaccinations rise in COVID-19 cases decline across many countries.
Obviously with the exception of India.
The travel market is highly dynamic and 2 important related factors positively impacted the market in the first quarter of 2021.
First the Chinese ban on Australian imports widened to a larger group of commodities this translated into longer sailing distances between export and important and of course effectively decreasing the fleet supply.
The iron ore trade from Brazil to China as the most notable but not the only example.
Secondly that wasn't unusual cold winter in China, where coal derived electricity represents around 70% of children electrical output.
Chinese coal inventories were relatively low heading into the Wyndham on and with a ban on Australian imports trade lanes changed this.
This reflected in the strength of the Panamax market.
That gave rise to the special situation that the Panamax is traded above the capes for a sustained period of time.
Strength that has now reversed again.
The market strength has of course persistent in Q2 and despite a correction over the past weeks, we remain bullish for the rest of the year.
Turning to slide.
Slide number 10.
And looking forward. The stage is set for prolonged period of demand growth for dry bulk commodities GDP growth is a good proxy for dry bulk demand and looking at the years ahead.
We expect that at least 2 years of high GDP growth.
Ahead of us driven by pulse, a retraction of Covid, but also.
As a consequence of the huge stimulus packages that are being employed currently by China, The U S and EU.
Turning to the next slide on looking more specifically at the commodities than the recovery from the pandemic is also expected to result in multiple years of demand growth across all commodity groups really.
It's forecast that would have been hard to imagine a few years ago, but we see that stay in the freight markets. While 'twenty 'twenty, 1 will almost undoubtedly be exceptionally strong the expectation for continued demand across all commodity groups in the years out is very encouraging.
That's been a good deal of talk about a new commodity super cycle, while we won't be the judges of whether we are entering a super cycle or not high commodity prices support high freight rates currently the freight cost for bringing iron ore from Brazil to China on near historic lows and naturally that leaves plenty of room for increases in the freight.
Turning to page 12 on the vessel supply than it is clear that flag fleet growth is slowing down dramatically. In fact, we are looking at the lowest fleet growth and 30 years at the moment. The order book is likely to stay muted. That's a very limited amount of slots available before 'twenty 'twenty 4.
We see increasing prices for the assets, mainly due to steel, but also due to increased demand and of course availability of financing new emissions are also keeping the order book and check.
Looking at 'twenty 2 'twenty 3 we have a potential further catalyst as we will see the new ironwood 'twenty to 'twenty 3 regulations are incentive force.
It is assessed by Sun that upwards, 80% of the dry bulk fleet is not in compliance with the new regulations and the easiest and cheapest way to get in compliance is by slow steaming. Therefore, we expect quite a lot of slow steaming from 2023 at a time, where we are already seeing very very few additions to the fleet.
It will of course further reduced the efficiency of the fleet and could act as a catalyst also P. On the 2 next years.
Turning to slide 13, and putting the pieces together. It is clear that there are some very powerful market dynamics at play.
We already in a relatively strong market yet for the next 2 to 3 years, we expect this situation to tighten even further.
1 is simply going to outpace supply until 'twenty to 'twenty 4.
So these forecast unfold.
Utilization will remain high and of course continue to support strong freight rates.
Turning to page 14, and before we enter day sessions a session I would like to talk about the cash flow generation potential.
As mentioned in the highlights we have recently acquired 18 vessels are they have increased our fleet science with 25%, obviously aiding us in bringing down cost. It has lowered the average H and it has increased our market cap on top of that we have been able to law kasparek Eden, which of course would be a benefit going forward.
And finally, we get the vessels straightaway in an exceptionally strong market.
Turning to page 15, and to remind about our low cost base, we have to pitch our industry low cash breakeven you will note on the chart that spot rates on cost significantly higher than these levels. The time charter market is also well above break even levels. Although we are primarily spot at the moment.
We have continued to actively manage our spot exposure in order to both protect against downside scenarios, while maintaining significant exposure to increases in freight rates.
It is important 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 on.
This requires us to combine our strong commercial capabilities with a flexible approach.
We have proven our ability to pick good moment for locking in longer term. She sees in the past and latest with a 3 cheese with did in Q1, turning to the last page of todays presentation and to give you an idea of how cash flow potential we have made the following a graft.
As it appears on 18th of May the blended average of Cape and Panamax rates were just shy of 30000.
On an annualized basis that gives us free cash flow above $600 million, which the company can allocate free.
We are always cautious not to pay too optimistic of a picture, but our first quarter dividend of 25 cents per share should provide a good indication for where we think the market is headed.
With that we will open up the call for questions.
Very much.
Thank you, ladies and gentlemen, who will now begin the question and answer session.
On day. She was she asked a question. Please press star 1 on your telephone keypad.
Net and wait for your name to be announced he can come so you'll be quest at any time, we used to husky.
Once again, it's still wanted to ask a question.
And we do have a question from the line of correct Louise.
Please go ahead.
Yeah. Thank you and good afternoon, and thank you for the presentation net in that forward guidance around Q2, those that those are some pretty healthy numbers, but what I was kind of curious and maybe looking for a little more color.
There's clearly been a pickup in time charters and vessels being fixed on 612 months even longer.
I'm kind of curious you know not.
We're really thinking about.
Forward things booking in the second half, but is it but is there any way to think about that.
Vessels and in the belief that are already locked in at attractive rates in the second half any kind of color around that.
Yeah, Hi.
Rick here.
Since the day instead, we have done now.
About as much color on so I can I can give you because that's what we have done so far we did we.
We did.
3 conversions recently.
But we would be looking to do more when the market picks up as you may have noticed the market showed a bit of a bit of a correction in recent weeks, but is now coming up again and as soon as we see.
Yep.
Risk value rewards.
And we feel is reasonable on which which called as Q1 next year. Then we would we will build the book a little bit more so we won't derisk going going forward, we don't see a lot of value in a 3 year time charters at this point, we think it's undervalued.
Further out on the curve.
That may change, but for now we are focusing on.
On the let's say 12 months.
So do I wish you the best of the best value.
Does that answer your question.
Yeah, Yeah, you know that that was per and then as I think about.
You know the balance sheet and leverage as you know you're taking the delivery of the rest of the acquisition congratulations on that by the way.
How how should we be thinking about you know maybe what like a pro forma fully built out debt.
Looks like and then as we think about it what is what is the company what is kind of the sweet spot knowing that your fleet is very young and modern so maybe you can you know maybe maintain more leverage versus some other owners that had to have.
Top to bottom older fleets, just kind of how do you think about that and how you know as as cash ex seller you know as we see this cash windfall come in over the next few quarters. Maybe next few years on how are we thinking about that.
Well I think as we speak.
Hi, Greg.
I think yeah as we've communicated previously that we are not seeking to lever lever up the company I think in terms of risk we have a we want to maintain.
The flexibility too to be fully exposed to the spot market.
That makes sense and I think with that we want to moderate our low leverage we have.
The indicators, we will finance the transaction that we did with him and.
55 per cent and.
It's around those levels.
We expect to finance the ships.
Uh huh.
I think that's also sort of a target for us.
But it's more we are more focused on the cash breakeven levels.
Entail rather than on the absolute or the relative leverage that will entail because they've got it at the on the other day.
What drives our cash flow.
We are with that leverage able to.
As we see it maintain.
Maintaining a very strong.
Cash breakeven because we can but you can't afford to have quite long repayment profile that would also give us the opportunity to attract very very well.
A very healthy terms on our on our financing so I think youre round dose levels as where we are where we are ex.
It could be positioned us in in terms of financial leverage.
Okay, Great Super helpful. Thank you very much.
Thank you once again it is still on 1 if you wish to ask a question.
No questions coming through at this time.
Alright, then we say thank you very much share.
<unk> for your time today and if there are any further questions. We can always be restart on rest of relationship.
You may have.
Thank you very much have a nice day.
Thank you, ladies and gentlemen that does conclude your conference call such a day. Thank you for participating on you may now disconnect.
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