Q2 2021 Golden Ocean Group Ltd Earnings Call

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Good day and thank you for.

Welcome to today's Q2, 2021 Golden Ocean Group LTV earnings Conference call at this time, all participants and it's been only mode there'll be a presentation followed by a question and answer session at which time. If you wish to ask a question you would need to press star one on your telephone keypad I must advise you that this conference.

Spending but is being recorded today.

I would now like to hand, the conference over to your speaker. He all Erik Anderson. Please go ahead Sir.

Thank you.

A warm welcome to Golden Ocean Q2 release presentation.

My name is Rick Anderson I'm, the CEO of Golden Ocean I'm delighted to present our results.

Today, together with Peter she wants and the Companys CFO.

In a moment I will talk me through the highlights of the quarter thereafter, Peter will provide details on our financial results. After that I will discuss the strong market outlooks, the company's cash flow generation potential and our recent for exiting the sushi.

C L Cape Chattering joint venture.

After the presentation, we look forward to answering any questions you may have.

Turning the attention to the highlights on slide number for Q2 was a very satisfying quarter for Golden Ocean.

We deliver an EBITDA of $130 million, which translates into a net income of 100.

Third and four and a half million U S dollars.

During the quarter. We also completed the acquisition of the 18 button Comstock and Newcastle Max's it means that additional vessel days are fully contributing in Q3.

We also refinanced the credit facility, the stern of finance, which further reduces our fleet cash breakeven.

For the quarter, we report TCE rates for Capesize, and Panamax vessels of $29000 per day and $19000 per day, respectively. We also increased our amount of fixed paying days by converting floating rates on 380 deadweight ton non scrubber tonnage to fixed rates of an average of 33000 Boe per day.

All deals cover the seasonally weak Q1 as well.

As announced a few weeks back.

Getting the CCL Capesize chartering joint venture, which I will talk about more later in the presentation.

And last but not least we announced a 50 cent per share dividend underlining our determination to reallocate significant parts of our earnings.

To the shareholders.

On that note I hand, it to Peter for the financial update.

Thank you Ulrich.

If we look at our profit and loss for this quarter, we recorded net revenues of $215.7 million.

This compares to a 119 point.

In the first quarter.

This is based on total time charter equivalent rates of 24900 for the fleet.

Which compares to 15900 in Q1.

We had three ships dry docked this quarter compared to six ships in Q1 impacted.

5 million our revenue days.

We have we expect.

Two shifts to be dry docked.

During the course of Q3.

Looking at our operating expenses.

We recorded 15, $50.3 million in operating expenses versus $48.6 million in.

The previous quarter.

This is mainly due to the addition of more shifts following the completion of the Hyndman transaction.

This was offset by.

By fewer shifts dry docked during the quarter as previously mentioned.

Yeah.

Operating expenses continues to.

Impacted by COVID-19.

Which increases the complexity.

And also the cost, particularly on crew changes and quarantine hotels.

We recorded the G&A costs of $4.6 million versus $4.1 million in in.

One.

This represents $529 per day net of recharge of.

Of course to other group companies in the sea tankers group.

It was impacted this quarter by accrual of profit sharing are due.

Due to the strong results.

In Q so.

Movements in the U S dollar.

Nokia FX movements.

On the charter hire we saw.

This increase from $13.9 million to $33 million and this is a reflection of higher.

Trading activity, but mostly the higher rate levels on charter in ships.

As Rick mentioned, we have an adjusted EBITDA of $135 million.

Depreciation.

Increased from 26.8 to 13 two.

And this due to additions of ships to the fleet.

We also saw.

An increase in net financial expenses, which also relates to additions of a of a <unk>.

New ships to the fleet, whereby we increased our debt level.

On the.

Derivatives and other financial income.

Recorded.

And a positive $16.7 million movement.

And this.

As a result of our strong results from RFA trading book, which recorded close to $17 million.

And profit and this is offset by $2.4 million mark to market loss on.

Our interest rate swaps.

Our results from associates were a positive $2.9 million versus.

700000 in last quarter and this mainly relates to.

Results.

Improvements from Swiss Marine dry bulk operator in which we own.

17%.

Marketable securities down by half a million, which relates to our shareholding in <unk>.

Previously Scorpio bulker.

<unk> net profit.

For the quarter was $104.5 million or <unk> 52 per share.

Versus 23 six.

In the last quarter.

Moving to our cash flow.

We had an.

The decrease from previous quarter of $153.7 million.

Which was cash outflow.

In related in relation to the ships that we took over during the quarter during the course of Q2.

The strong freight market in the quarter increased our cash flow from regulation.

Cashless operations to $134.2 million.

This compares to $6.6 million in Q1.

With the strong freight rates, we also increased our.

Our receivables are and and working capital by $15.5 million. This was offset by a.

<unk> $18.6 million relating to.

Deposit that was recorded as other receivables for Golden pass a ship that was delivered from the shipyard during the quarter.

Giving a net positive working capital movement of $3.1 million.

On the financing side we.

<unk> had $63 million cash drawdown.

Under the Sterno.

Finance facility.

And the remaining debt.

Which totals $413 six was assumed buses a reduction in the purchase price settlement for the 18 acquired ships.

You also had a $16.9 million proceeds from the subsequent offering recorded in Q2.

And this was.

Offset by scheduled debt and lease repayments.

Resulting in a in a cash flow from financing of of close to zero.

Cash flow used in.

<unk> was $288.3 million in Q2.

Mainly due to the acquisition of the human fleet, which.

Which was offset also by proceeds from the sale of Golden <unk> of.

$8.1 million.

And as of 30 June all 18 ships acquired from Heaven.

We're taking over.

Looking at our balance sheet the cash quarter.

Quarter end was $175 million.

Which includes $22 million of restricted cash, which secures our derivatives portfolio.

Our debt and lease liabilities totaled $1.5 billion at the end of the quarter.

Being scheduled repayments of debt and lease.

Offset by drawdowns under the Sterno facility.

Our total assets.

Totaled $3.5 billion.

<unk>, which give us an XD.

To total assets ratio of approximately 56% at quarter end.

Looking at our recent financing refinancing that we have put in place we have signed agreements for two.

Financings to refinance the stern facility.

We have put in place a.

$175 million.

Bank financing, which is a five.

Fuller.

So financing six Newcastle amongst vessels.

The main terms of this facility includes a 190 basis points credit margin.

A 19 year age adjusted repayment profile.

The facility was significantly oversubscribed with.

We are 10 eight banks in total.

<unk>, which includes four new banks to Golden Ocean, which significantly increases our our banking capacity.

And with the very high quality banks.

We also have signed an agreement for a 200 up to 200.

Third 60 million lease agreement sale and leaseback with.

Leading Chinese leasing house it has.

A 22 year age adjusted profile.

And it's priced at 200 basis points.

And as financing for Newcastle Max ships, an eight camera from axis.

And.

Attractive refinancing options throughout lease periods.

These two credit facilities demonstrates golden Ocean <unk> ability to raise highly attractive financing.

And our consistent ability to push down our <unk>.

Cash breakeven rates.

The.

Cash break.

We even rates.

Our reduced by close to $500 per day for the finance chips.

Compared to the start up facility.

And across the total Golden Ocean fleet will reduce the cash breakeven rates of approximately $100 per day.

And with this I give the word back to Rick.

Thanks Peter.

Now, let's have a look at the Q2 market developments.

One was the best quarter in more than a decade and it meant that we entered Q2 with a lot of momentum supported by solid demand growth across all dry bulk commodities.

And a limited influx of new vessels.

In addition, the ongoing recovery.

<unk> resulted in inefficiencies and port congestion caused by the COVID-19 pandemic, reducing the effective fleet supply.

This led capesize rates climbing to well above $40000 per day, all the while the panamax rates enjoyed a steady increase as well.

As it appears the Cape rates.

<unk> held back before again going off a development has continued into Q3 with today's Cape market printing around 50000 U S dollar per day.

Turning to the next page.

And looking ahead, we remain bullish about the future.

Q2 was a good quarter on <unk>, but.

But we have strong reasons to believe Q3, and Q4 will be better in fact, the stage is set for a prolonged period of solid demand growth for dry bulk commodities across the board well into 4045.

As we know GDP growth is a good proxy for dry bulk demand and looking at the years ahead, the IMF expects at least two.

Two years of high global GDP growth driven by a retraction of Covid, but also by the huge stimulus packages being employed worldwide, most notably by China, The U S and the EU.

We are particularly upbeat about the strong growth prospects in India, and China, the two largest importers of dry bulk cargos.

The world is restocking.

Talking and it is good news for the dry bulk sector.

Looking at the dry bulk net fleet growth.

And having just established that the demand side is looking favorable it is interesting too.

Drill further down in the supply side as well.

On page 12, we have to.

The pitch to supply situation there.

The order book as a percentage of the operating fleet currently sits at a 30 year low.

New billing orders remained low and today that very few available slots left for 2023 as the yards are busy building container and LNG vessels.

Several factors have kept new billing orders at low levels, including.

Fueling sharp rise in new building prices on the back of searching steel prices.

City of competitive finance and importantly question marks over future regulations.

So.

Combining the supply and demand side. It is clear that we are witnessing very powerful market.

Dynamics at play.

We already have a tight market, but the situation is expected to tighten further going forward demand growth is set to outpace supply growth through at least 2023.

Should this forecast unfold fleet, a fleet with utilization should remain high and continue to support strong freight rates.

Dynamic we have seen demand outpaced supply before but never when the order book is so small relatively to the size of the global fleet.

What is further reducing the effective fleet supplies.

Why is the search in port congestion.

Last week at a global level twos of bulk carriers of ports in Anchorage and.

Hit around 16% of the entire global trading fleet.

About one third of all those vessels are waiting outside Chinese ports.

Toby just the main culprit, causing delays as vessels are quarantined diverted for Q change ports are closed as COVID-19, so flaring up et cetera.

We are also seeing great adventures.

Coaches and full causing panamax vessels to wait for weeks to discharge.

We do not see Covid impact on the effective fleet supply unwind anytime soon and it will act as a further accelerated in the month and quarters to come.

Turning the attention to our cash breakeven.

<unk> B can say that through well timed acquisitions economics of scale and access to competitive finance Golden Ocean has achieved industry low cash break evens are cast forgiven for Newcastle Max's 11704, Capesize vessels of 12000.808000.

400 on our Panamaxes.

Our cash break evens are all in and were further reduced with our recent refinancing of the 435 million Stoner facility.

The reason why there's a difference in the Casper.

Cash breakeven for the new cosmetics in the Capesize that on the Capes we have.

Our.

Financing for the scrubber included.

Naturally this also gives the 23 vessels.

Which we have scrubbers on.

Earning potential of around two to 3000 per day due to the fuel savings.

And as a means of reminder, all of our new cosmetics as a scrubber fitted.

With that.

Our to have a look at the cash flow generation potential.

With a 94 vessel fleet. This is quite method, if we look at today's rates.

And look at what that means in terms of cash flow generation. We are looking at a massive $1.1 billion in free cash on an annualized basis.

This represents.

Then 34% direct return on our market cap, which currently sits around $2.1 billion U S dollars.

With no near term debt maturities or Capex. The boat is free to allocate the cash as it may see fit.

Don't think I need to remind anyone that dividends remain a priority for management and.

And Paul turning to page 16, we would like to explain a little bit more about our exiting of the Capesize chartering limited.

A few weeks back we announced that Golden Ocean is protecting from the Capesize chartering limited usually referred to as the CCL pool.

We had five good years with some excellent partners all.

I think we have the greatest spec for.

However, when we acquired 10, new class of Max's early in the year, we increased our Cape fleet by 22% all the while we are cementing our position as the largest listed owner of Capes.

Having achieved a critical mass of vessels and naturally also enjoying better markets with less need for consolidation.

Of whom the time was right for Golden Ocean to exit the pool Corporation.

Standing on our own enhances our commercial flexibility.

Food was flexible, but it did put some restrictions on our ability to trade. The vessels, we will now be 100% and control of the commercial strategy, including geographical positioning.

We found the freedom to enter into <unk> and other forms of forward cargo booking.

It would be easier to fix term business as we do not give notice to the pool for protecting the vessel and so on and so forth in other words Golden Ocean will become more responsive and Lightfoot.

By exiting the pool, we also get closer to our customers.

<unk> grew more direct relationships the better we understand our customers better service, we can deliver and hopefully getting closer to our customers can also lead to collaboration and other areas and other areas.

Evidently we have a massive decarbonization task ahead of us, which can only be lifted if the industry works together.

Giving.

Commercial desk full P&L responsibility will lead to a higher degree of accountability and motivation, which we expect to increase our ability to generate returns.

Finally, we simplify procedures and reporting and increased transparency. In addition, with centralized and strengthen our commercial activities and also in Singapore.

Giving harbor as we closed out our presence in Antwerp.

We believe the retraction of our vessels will be completed before December this year.

So before wrapping up today's set of session and hitting into the Q&A allow me to shortly recapitalized the market sorry. The main drivers for continued strong drive.

Singapore market.

We have high growth demand.

In the years to come the world is restocking driven by stimulus and pent up demand.

At the same time fleet growth is accelerating and is the accelerating hot with net fleet growth the lowest in 30 years further reducing the effective.

Hi, Paul supply is the severe congestion caused by Covid, which will aid in pushing utilization to new heights This year and next.

On top of that we have an inefficient dedication of coal due to the Chinese band of Australian coal, which will also increase ton mile.

In the more colorful department, we Havent recent weeks heard about.

Dry bulk vessels trying to get certified S box ships as container vessels, obviously, allowing them to carry containers. We also looking into this possibility. It is too early to say if that happens, but if dry bulk vessels are used for transporting containers. It will needless to say further reduce the supply.

In any case it is evidence of.

The fleet or a unique situation that persist now across most of the shipping segments.

With that I want to hand, the word back to the operator for the Q&A session.

Thank you, ladies and gentlemen, if you wish to ask a question at this point you can always press star one on your telephone keypad.

Once again Thats star one on your telephone keypad to ask a question and the hash upon Kitty cat subtle.

And once again, ladies and gentlemen, if you wish to ask a question you can press star one on your telephone keypad.

It appears as though Theres no question at this point, so I'll hand, the conference back to you.

Okay. Thank you for dialing in.

Have a nice evening.

Ladies and gentlemen. This concludes today's conference you may now disconnect. Your lines. Thank you for your participation today.

Pat.

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