Q4 2021 Golden Ocean Group Ltd Earnings Call
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Thank you for standing by and welcome to the Q4 2021 Golden Ocean Group Limited earnings call. At this time all participants are in listen only mode. There will be presentation, followed by question and answer session at which time if you wish to ask a question you need to press star one on your telephone.
But she was at your conference is being recorded today.
I would now like to hand over to your speaker. Mr. You are weak on defense CEO . Please go ahead Sir.
Good afternoon, everyone. Welcome to this Q4 release my name is Rick Anderson and next to me here happy to see a bunch of them Oh CFO .
Today, we are here to present to you our Q4 numbers and give you an understanding of what has happened and where we're going.
What we will show you during the next 15 to 20 minutes is that we have capitalized on the strong Q4 wireless securing attractively priced cover for the first half of this year.
That we continue to pay out a significant portion of our net profit and dividend.
And that the supply and demand fundamentals remain in place for a sustained period of profitable markets.
On that note, let's take a look at the main highlights for the quarter.
We recorded an EBITDA just above $240 million, which translated into a net income of $204 million or $1 <unk> per share.
This is the best quarterly result in the history of Golden Ocean.
We also sold two panamax vessels at attractive prices as part of our renewed decarbonization strategy.
We will show later the net proceeds from the sale covered the first installment on the hour seven comes from Ox New building program.
We report TCE rates of 39300 per day for the Capes and 29600 for the Panamaxes looking at this quarter Q1, we have so far secured $26000 per day for 75% of our Cape days $21000 per day for 72%.
<unk> of our Panamax days.
Looking into Q2, we have secured 31000 per day for 22% of our captives.
$23000 per day for 14% of our Panamax days.
Finally, we announced a dividend of 97 per share this.
This is our fourth quarterly payout and underlines our strong belief in the market.
It will take dividends relating to 'twenty to 'twenty $1 million to $500 million.
Now, let's dive into the numbers in details and have a closer look at the Q4 financials Peter over to you. Please.
Thank you Rick.
If you move to slide five.
We can have a look at our P&L results.
In Q4, we recorded TCE revenues of $306 5 million, which was flat.
Flat from the previous quarter of $306 seven.
This is the result of strong performance from all segments as Rick mentioned, we recorded 39300 and TCE rates for the Capes.
It was up by $1200 from the previous quarter.
This compares to a cash breakeven rate of 12800.
On the Panamax in notebooks the vessels we recorded.
9600.
Which was up by 4900 from Q3.
For these ships, we have an average cash breakeven of 8600.
Our total fleet TCE was 35300 in Q4 versus 32300 in Q3.
We had five ships dry docked in Q4 versus phone chip dry docks in Q3, which resulted in approximately 200 days or 2%.
Off hire versus 85 days in Q3.
We have five ships due for dry docking in Q1 2022.
We recorded as in the previous quarter.
A sales gain of $4 9 million.
In Q4 related to the Golden endure as previously announced.
Looking at the ship operating expenses.
We had an increase in operating expenses.
<unk> 2 million.
This increase was mainly a result of more dry dockings.
Which we expense.
And also one off insurance deductibles and COVID-19 costs.
Which continue to impact the results.
Opex extra dock was 5950 in Q4 versus 5500 in Q3.
And dry dock represented $620 per day.
Versus $100 per day in Q3.
Looking at our overhead costs.
The 4.8.
<unk> 8 million in the G&A.
Which was slightly up from from the previous quarter at $4 6 million.
But we maintain the best in the industry level.
Our overhead costs.
The data G&A came in at $517 per day net of recharge.
And this was impacted by profit sharing accruals of approximately $100 per day.
And reclassifications of approximately $50 per day looking at our charter hire expense. This was down from $31 million in Q3 to $11 million in this quarter, which reflected the lower trading activity with charter in tonnage in Q4.
This netted to a an adjusted EBITDA of $243 5 million versus 200.
$29 4 million in Q3.
Moving to our financial expenses.
We had.
A $10 4 million in net financial expenses, which was 400000 down from the previous quarter and this was the result of lower credit margins on our refinance the credit facilities that we closed in Q3.
Although our derivatives and other financial income, we recorded a gain of $10 1 million comp.
Compared to a gain of $16 1 million in Q3.
Our mark to market results, all our FSA portfolio came in at a loss of $2 9 million, while our interest rates swap portfolio recorded a gain of $4 1 million, resulting in a net derivatives result of $1 2 million versus $5 6 million.
In Q3.
The results from investments and associates.
Recorded a gain of $9 9 million versus $11 1 million in Q3.
The main contributor is the share of results from the dry bulk operator Swiss marine.
$8 9 million.
Our other investments such as UFC and <unk>.
<unk>.
With another $1 million.
We recorded a loss on marketable securities.
Rich.
<unk> of our shareholding in <unk>.
$2 million this quarter.
And finally, we.
We recorded a dividend from the Norwegian warrants or is association the NK, a $1 1 million.
This resulted in net profit of $203 eight or $1 <unk> per share versus 195, three and 97 cents per ship.
Taking a quick look at our full year 2021 results.
We recorded 31300 per day TCE for our Capesize sizing Newcastle Max fleet.
22500 per day on our Panamax <unk> Street.
Our fleet wide TCE for 2021 with 27600 <unk>.
This resulted in the TCE revenue of $948 million.
<unk> EBITDA of $658 million on a full year net profit of $527 million.
$2 74 per share.
Moving to slide six.
We can have a look at our cash flow for the quarter.
We recorded a net decrease in cash.
<unk> $54 4 million.
We recorded a cash flow from operations.
Was up by $18 7 million from the previous quarter to $219 2 million in Q4.
Our cash flow used in financing was.
$269 2 million.
This consisted of scheduled debt repayments of $34 5 million.
We recorded a $14 million debt prepayments related to the sale of the two panamax vessels that were delivered during the quarter.
And we also repaid $50 million in revolving credit facilities.
We also paid $174 million in dividend relating to the Q3 results.
Moving to our cash flow investments they came in at $2 4 million.
Rick mentioned the sales proceeds from the sale of Goldman <unk> and Golden opportunity.
$36 3 million matched the investments of $36 million.
In installments for the seven cancer mix shifts that we have under construction.
In addition, we had a.
Ballast water treatment investments related to the dry dockings that we did during the quarter of $2 8 million.
Moving to slide seven we can have a look at our balance sheet at.
At quarter end and year end.
We recorded cash of $210 million, which includes $13 1 million in restricted cash related to our derivatives portfolio and.
In addition, we have $100 million.
Undrawn and available credit facilities at quarter end.
Our debt and lease liabilities totaled $1 4 billion.
Quarter end.
And our book equity was $1 9 billion.
With total assets of $3 5 billion the ratio of equity to total assets came.
Came in at approximately 56%.
Looking at our.
Our committed capex and debt maturities on slide eight.
We can see that we have marginal remaining capex.
When we assume a 55% leverage on the new buildings once.
Once delivered.
Our remaining capex.
Equity Capex stands at approximately $65 million.
Of which 22 million have already been raised two vessel sales.
We had cash.
And liquidity.
Available liquidity at year end.
About $300 million.
And with a low leverage and young fleet, we have significant access to attractively priced funding for refinancing.
That come due in the next.
Yes, and also the funding of our new building program.
This gives us the flexibility to allocate capital freely.
We continue our focus on dividends.
With that I give the word back to Rick.
Thank you Peter.
Turning to slide 10.
And looking at the Q4 market development than Q4 was another good quarter for the dry bulk owners with Cape rates hitting 87000 per day.
This is the highest level, we've seen in more than a decade.
Even if rates stay cool off the rates were exceeding cash breakeven <unk>.
During the entire quarter.
The three main drivers were the continued inefficiencies and congestion.
Our strong growth in the coal trade.
And finally, rising Brazilian iron ore shipments.
With that lets look ahead and turn to slide 11.
The rates have dropped significantly throughout January caused by a combination of seasonality and a slowdown in Chinese steel production.
However, we believe the worst is behind us and that the market will gradually improve as the Chinese steel industry gears up after the Olympics.
Iron ore prices affirming demand from brands is also supporting while the energy crisis means demand for coal remains elevated so we remain very bullish for what lies ahead.
<unk> the stage is set for a prolonged period of solid demand growth for dry bulk commodities all the way through 2023.
There are many factors influencing the demand for dry bulk, but GDP growth has always been one of the best practices.
It is key to remember that for the past 20 years on average the demand for dry bulk shipping has.
Been growing sorry, 20% more than the royalty to <unk> growth.
So even if GDP growth is tampering off slightly this year. It is firstly compared to an exceptionally strong 2012.
'twenty, one secondly, still growth rates that are high compared to the historic average.
In our view the anticipated growth will support our continued strong freight environment.
Turning the attention to the supply side also here developments are looking attractive.
The order book currently sits at no less than a 30 year low in recent years ordering has been muted and it now coincides with a period of strong demand growth naturally setting the scene for an attractive price bulk market.
Going forward, we do not see ordering picking up the prices are at a historical high level. While there is no clarity on what propulsion technology is truly future proofs.
It is in any case unlikely to get new building slots before the very end of 2023.
It gives us a runway of minimum two years with very modest fleet growth.
This is a quite remarkable situation shaping is of course cyclic but usually the downturn has caused by oversupply.
Since 1991, the demand for dry bulk shipping has been growing by an average of almost 4% per annum.
Only two years in that period did it retract during the financial crisis in a wait and Jordan Cove. It in 2020.
In other words it is normally the owners oversupply in the market, which causes the freight to come under pressure not the lack of demand. This time the supply side is well under control.
Ordering has been muted for some time now and not looking to pick up.
So.
When we combined the anticipated supply growth with the anticipated demand growth on slide 13, much point to an extended period of sustainable earnings.
It will be driven by healthy demand growth combined with exceptionally low fleet growth. This in itself of course is positive.
We have a disruption and congestion in the supply chain, which was a major factor in the Cape rates, reaching 87000.
Late last year on the unlikely to unwind anytime soon these.
And efficiencies will continue this year and support a strong freight environment.
Further looking into 2023, which is now we can say around the corner the new <unk> regulations on emissions into force.
The main venue for compliance for many owners would be slow steaming thus further reducing the.
Effective supply.
It is on the back of those considerations Golden Ocean remain confident that the dry bulk market stats in front of a prolonged period of profitable markets.
At our last release, we were clear that we wanted to hit the first part of 2022 to mitigate risk improve visibility and ensure and protect our dividend capacity.
Frankly speaking we wanted to build a bridge between the often weak first half of the year and the expected stronger second half.
Therefore last year, we put a significant part of our fleet out on fixed contracts until and including Q2 this year.
It means that as of today, we have in Q1, 74% of the entire fleet covered at rates well above cash breakeven.
In Q2, 22% of <unk> covered at above $31000 per day.
14% of our Panamax days carbon at close to 23000 per day, all Q2 cover well above the forward market.
From Q3 onwards, our spot exposure increases dramatically in line with our positive market view.
We have however, no ambitious of being a pure spot player and it is an integral part of our strategy to actively manage our spot exposure like we have done for Q1 and Q2 this year.
So we constantly assess the market looking for opportunities to lock in cash flow. We will continue to do this throughout the year.
On the last two slots of date, we will focus on cash flow generation.
Well times acquisitions economics of scale and access to competitive finance, we have achieved industry low cash breakeven on our fleet.
Our average cash breakeven as Peter mentioned this 12800 for the Capes at 8600 for the Panamaxes.
The cash breakeven is all in it includes amortization interest G&A.
As it appears on the right hand side of the graph our breakeven allows for strong earnings but at the same time. It also acts as downside protection. The Cape market for instance has not been below our cash breakeven levels for very long in the past five years.
So with our low cash breakeven and the robust market outlooks Golden Ocean has cash flow potential is substantial.
As of this week, the blended average of Cape and Panamax futures for the remainder of 2022.
And reflecting our ratio of capes and Panamax vessels was around $25000 per day.
On an annualized basis that means generating $500 million over our cash breakeven.
Of more than 23% on the share price.
As we know it is a board decision, what we will do with future earnings, but with no material Capex and no appetite for new buildings. It is a fair assumption that Golden Ocean will continue to have dividends on top of the priority list when it comes to capital allocation.
Something which certainly so fassbinder case seeing we have paid out 500 billion dollar and dividend relating to 2021.
Before opening for questions I'd like to wrap up three main messages that we are focused on today.
Golden Ocean capitalized on the strong Q4 market, making more than $200 million net profit the best quarter in the history of the company.
Golden Ocean has built a bridge between the weaker first half of the year and the expected stronger second half of the year by taking out fixed paying contracts last year.
Golden Ocean has paid $500 million in dividend relating to 2021 and dividend continues to be a priority in 2022.
And now we start the Q&A session are therefore hand, the word back to the operator. Thank you.
Thank you Sal.
As a reminder, ladies and gentlemen, if you wish to ask a question. Please press star one on your telephone.
Wait for your name to be announced if you wish to cancel your request. Please press the hash of K. Once again, if you have any questions or comments. Please press star followed by one on your telephone.
We have first question is coming from the line of Kevin Mullins from value Investor's edge. Please ask your question.
Good morning, gentlemen, thank you for taking my call and congratulations for this quarter.
You've done an excellent job hedging the first part of the year and it seems you remained fully open towards the second half.
Could you provide some commentary on what are you seeing in the time charter market for longer term contract in the current environment.
Yes, Hi, this is <unk> speaking thank you for your thank you for your question.
It is not correct that we are fully exposed to the spot market in the second half.
We have we have all.
Already some contract cover.
And as I also said on here on the call. We plan to we plan to increase that and manage through Q2, Q1, and Q2 next year as well.
Don't think now is the right time to.
To lock away contracts. So we will do that as and when we see a turn in the market, which we expect to happen here in the in the following months.
As regards to your question on on longer term cover it depends a bit on what vessel in size.
And Todd.
But generally speaking we are looking at at the rates around the forward market for the for the for the 12 months basis for Fr Capesize at high trend as 2728, but bear in mind that our fleet is more efficient than a standard container vessels, it would probably be able to.
Fixed now in the low Thirty's for 12 months.
And whether we plan to check that out yes, we do that but as I just said.
Awaiting for.
Later in the year, when we think that would be a bit.
A better proposition.
Alright Thats helpful.
You were seeking Swiss marine has been performing quite well over the past few quarters could you provide an could.
Could you provide some overall commentary and that stake and whether you expect to receive any dividends from the entity going forward.
Yes, we expect to receive some dividends eventually from this.
From this entity this investment, but I cannot sit here today and say when and how much.
But we have noted with the pressure that's been a strong performance from from from Swiss Marine last year and we.
We hope that would be similar performance this year.
Sounds fair.
Turning back to the market you have a constructive view on the overall market, let's say.
This release, you mentioned that fleet productivity the Greek by 10%. This year could you provide some further commentary and congestion in the sector.
Your expectation for 2022.
Yes.
We do not expect a.
Congestion to unwind this year.
Certainly elevated last year due to due to COVID-19 .
And we expect these effects to continue into 2022 and this relation its important to remember that's always a certain amount of congestion and inefficiencies, which usually is around 5% six 7%, but this year. It has shut off.
Sure.
Our percent sorry ill.
Shut up so so that would always be congestion.
Some sort of cost and inefficiencies, but we expect this to continue into 2022, and then slowly unwind as hopefully we battled badly Colgate.
As I also mentioned here today the next.
Can you say.
The reduction of its efficiency off the supply we foresee in relation to <unk> 2023, well the venue for most owners would be.
In order to comply to them to.
To do a cap on the on the speed up the vessel and obviously when you kept the Max Pete of the fleet.
And then.
It means that there's sufficient so so we see inefficiencies also coming next year.
So so.
In short the answer is yes, we see if it persists for this and next year will be of course, a helping hand for it for the already strong.
Supply demand balance.
That's very helpful. Thank you and I was wondering if are you seeing any effect of higher oil prices in vessel speeds.
No obviously, we see the effect.
In our time charter equivalent so and so when you have when you have higher bunker cost you have.
Obviously, a lower earnings so thats a correlation dam on the flip of that is that at the same time, we are seeing that the spread between high sulfur and low sulfur fuel expanding and seeing we have around half of our fleet.
<unk> installed than we we gained from that.
But then but no at the moment, what we are seeing.
So speed.
Chairman either by the daily market and your earnings and not not correlated directly with the with your oil price all the bunker price.
Alright, that's all from me congratulations again for this quarter yes.
Yes, thank you for listening in.
Once again, ladies and gentlemen, if you do have any questions or comments at this time. Please press star followed by one of your telephone.
So Ron just further questions at this time, Mr. Rick Anderson I hand back to you.
Alright, Thank you very much everyone.
Want to say, thank you for listening in today.
We are always open for questions on our Investor Relations E Mail if anything is unclear. Thank you very much and have a continued good day.
Ladies and gentlemen that does conclude our conference for today. Thank you for participating you may now disconnect your lines. Thank you.
Thanks.
Okay.
Thank you.
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