Q1 2022 Golden Ocean Group Ltd Earnings Call
Good day, and thank you for standing by and welcome to the Q1 2022 Golden Ocean Group Limited earnings Conference call. At this time, all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to turn the conference over to your speak its day or week Anderson. Please go ahead Sir.
Good afternoon, everyone welcome to Golden Ocean, <unk> first quarter release called.
My name is Oregon, Doosan and I'm. The CEO of next to me I'm happy to see Muslim Oh CFO .
Today's about looking back and I hit.
We will give you insight and information on the key numbers from the first quarter, but also talk about how the outlook for dry bulk books.
Today's overall message is that we deliver another strong and solid financial performance.
Courtesy of a firm Panamax market and a high degree of Cape contract coverage secured at attractive levels last year.
In the next 15 to 20 minutes, we will.
It showed that we have refinanced debt lowering our already industry low cash breakeven.
That we continue to pay out a significant portion of our net profit in dividend.
And that despite worldwide economic headwinds the fundamentals remain in place for a sustained period of profitable markets.
With that let's take a look at the main highlights for the quarter.
In Q1, we recorded an EBITDA of $149 million, which resulted in a net profit of $125 million or 63 cent per share.
We achieved average time charter equivalent rates of 24800 per day for the Capes and 23600 for the Panamaxes.
Worth noticing is that the average rate for Capesize vessel in Q1 was 14700 and.
In other words, our strategy of hedging Q1 with fixed paying Cape contracts last year paid dividends, our average Cape earnings with 10000 per day better than the market.
Looking at this quarter Q2, we have sofa secured 28000 per day, 478% of all keep this 27000 per day for 77% of all Panamax days.
Looking ahead and into Q3, we have secured 38000 per day for 15% of our Cape days and 35000 per day for 33% of our Panamax days.
During my we signed a $275 million loan agreement the new facility will reduce cash breakeven for the 14 vessels in the facility by 1500 per day.
Finally, we announced and all the significant dividend, we will pay out 50 cents per share for Q1.
The dividend underlines our belief in the longer term fundamentals and takes the total dividends paid over the past 11 months to more than $600 million.
Now I pass the word to Peter who will dive into some of the numbers and financial details of the quarter.
Thank you Rick.
If you look at our profit and loss, we recorded Uh huh.
TCE revenues of $208 5 million.
<unk>, which was down from $306 million in the previous quarter, but as Rick mentioned the support is very much by strong performance from our Panamax segment and also the coverage.
In our case segment in an otherwise weak seasonally weak part of the year.
The total TCE rate per day was 24300 down approximately.
11000 from Q4, we.
We had six ships dry docked in Q1 versus five ships in Q4, which resulted in approximately 3.5% of our total days of higher or 294 days.
We have five ships Troy Drydocking in in Q2 this year.
Looking at our operating expenses, they were more or less flat adjusting for the additional shifts that was dry docked compared to previous quarter coming in at around $58 million.
Our opex continues to be impacted by Covid.
COVID-19.
The pandemic, which impacted our opex by approximately $300 per day in Q1.
Looking at our G&A.
More or less unchanged slightly up due to the impact of profit sharing accruals.
Coming in just below a $900000.
Charter our expense.
With a $10 3 million, which was slightly down from previous quarter, reflecting lower charter hire rates on charter in tonnage, while the chartering activity increased in number of days.
Our adjusted net.
EBITDA was 149 million.
Versus 243 in Q4.
Moving to our financial expenses, we saw the.
The expenses unchanged quarter on quarter.
Say for a an addition of capitalized interest on the new buildings or 300000, which recorded this quarter.
On the derivatives and other financial income we recorded a gain of 33 million in Q1.
Compared to a gain of 10.
$10 million in in Q4.
The main contributors here, where the interest rates derivatives, which contributed with $16 4 million in gain.
LIBOR rates moved higher in the perfect curve.
From FFA derivatives and bunker derivatives.
They contributed with approximately $2 5 million.
In addition, we have the results from investments and associates gain of $15 3 million.
Which are our investments in a drug or operator, Swiss marine contributed with $13.4 million.
This resulted in a net profit of $125 3 million or 63 cents per share.
Moving to the cash flow.
We can see that we recorded a net decrease in cash of $94 3 million.
Which is aggregate of cash flow from operations.
123 million.
The cash flow used in financing of $223 million.
Cash flow from investments of $4 million.
The most notable here is the Castro return from our investment in interest Marine which returned both a shareholder loan repayment of $5 4 million and a dividend of 6.5 million recorded in Q1.
In terms of debt repayments, we had scheduled and doesn't lease repayments of $33 8 million.
Which of which $6 8 million related to extraordinary denary repayments of of a sale of one panamax vessel.
Moving to our balance sheet.
We recorded a.
Cash position of 105, $15 7 million.
Which includes $8 4 million of restricted cash.
In addition to this liquidity, we also have 100 million of Undrawn and available credit facilities at quarter end.
We have debt and lease liabilities of a total of $1 4 billion.
On an unchanged book equity of $1 9 billion, which gives you a ratio of equity to total assets of approximately 56%.
Looking at the new financing that we have signed a during this or prior truth to this release, we have put in place a 275 million credit facility.
Which includes the 50 million revolving credit.
Credit capacity.
This is our first financing based on the sulfur right, which is the reference rate that will replace LIBOR.
In the old new facilities and eventually in all of our credit facilities.
The financing is priced on the basis of sulfur plus 190 basis points.
A 20 year repayment profile.
If you look at the difference between Sofa and LIBOR silver has traded.
Approximately 15 to 30 basis points below the LIBOR rates historically.
Which means that the.
Margin that'd be have put in place equals approximately 165 basis points on the LIBOR basis.
And that's what Rick mentioned this cash breakeven.
The cash breakeven for the new facility will be reduced by approximately 1500 for the facility.
Approximately 400.
Per day for the full Cape rates.
If you look at our cash breakeven for this for the both both segments you can see that the.
Cash breakeven has increased somewhat due to the the increase in and reference rate or LIBOR.
During the quarter.
Which has impacted the panamax cash breakeven by approximately $400 per day.
The Cape.
Approximately the same with them the adjustment for this cause it financing.
With that I give the word back to Rick.
Thank you Peter.
Now, let's begin with a quick review of the market developments in Q1.
In some ways the quarter developed as expected we saw a return to normal seasonality and seasonality that was largely absent in 2020 one.
But there were also other events and drivers at play.
We saw decreasing industrial production in China ahead of the Winter Olympics.
We saw unusually heavy rainfalls in Brazil, hampering iron ore export.
We saw the emergence of the omicron variant and obviously, Russia launching an invasion of Ukraine.
The Cape and Panamax market responded differently with Cape rates coming under pressure and averaging a shy of 15000 per day, whereas the panamax rates state firm throughout the quarter at an average of $23000 per day.
I warn you crane and its crisis and increasing inflation mean that the world is facing new challenges in the aftermath of Covid. The IMF forecast global GDP to grow three 6% in each of the 'twenty to 'twenty, two and 'twenty 'twenty, three which is a slight down.
What provision since its last forecast.
Having said that the forecast remains high from a historical perspective and worth noticing as well is that the growth from the emerging economies remained strong.
In this respect it is interesting to look into the relationship between GDP growth and the demand for shipping.
As it appears seaborne trade has consistently grown over the last 32 years at a pretty solid three 7% per year on average.
Only during extreme events like the financial crisis, and Covid did volumes retract.
There's a high correlation between GDP growth and seaborne trade in fact seaborne volumes are on average growing by 20% more than world GDP.
In other words it is the oldest building too many vessels, which caused the market to come under pressure not the lack of demand.
On that note of course, it is interesting to look at the supply side and see what the owners are doing.
Contrary to it to be perhaps the ordering is at a 30 year low.
The factors that the owners are not playing any placing any orders and have not done for quite some time.
There are several reasons for that but the three main ones being.
That new building prices are very high in a historical perspective.
That capacity is limited and available delivery slots at minimum two years out.
And finally, there are question marks over what technology is truly future proof.
On the back of that we expect the order book to stay muted for this foreseeable future.
So pitching supply and demand together much point to an extended period of sustainable earnings.
The way the world may be facing headwinds in terms of inflation and slowing economies, but it is not enough to upset the outlooks for dry bulk we believe.
As we've shown today demand will continue to grow and at the same time, we are looking at a historically low influx of vessels.
Bind with inefficient allocation of coal and grain and inefficiencies from congestion and new I'm a regulations next year.
In our view this will support our continued strong freight environment in the years to come.
As we have been explaining on our last call. We planned our commercial strategy around hedging a lot of Q1 and some of Q2, while keeping more exposure to the second half of the year, which traditionally is much stronger than the first part.
It is important to underline we do not want to be fully spot exposed at anytime, but we seek to take out fixed contracts in the best possible market conditions at.
It mitigates risk improved.
Improved visibility and protects our capacity to pay out dividends.
As of today for Q2, we have secured around 78% of our available vessel days at around 28000 dollar per day net.
Looking into the next quarter, we have taken out 15% of our Cape days at 38, and a half thousand dollar per day, and 33% of our Panamax days close to 35000 per day.
As it appears we are focused on securing panamax days simply because the pricing in the last few months has been much more attractive for Panamaxes then for capes.
We always balance our commercial strategy between the segments to extract maximum value at the lowest risk.
On the last lot of today, we will focus on cash flow generation.
Through well timed acquisitions economies of scale and access to competitive finance, we have achieved industry low cash breakeven as already laid out by Peter earlier.
As it appears the cash flow generation potential and Golden Ocean is substantial.
For instance.
Looking at the FFA oil futures market for this year Golden Ocean status to generate more than 500 million dollar in free cash over the next 12 months.
As we know it is a board decision, what we will do with future earnings, but with no material capex strong balance sheet and no appetite for new buildings I believe its 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 has been the case, so far seeing we have paid out more than $600 million in dividends in the past 11 months.
Before opening up for questions I'd like to shortly wrap up three main points from this release.
Golden Ocean hits, Q1, and delivered a solid net profit of $125 million.
Golden Ocean is refinance part of the debt and lowered our already industry low cash breakeven.
Despite a slowdown in economies around the world. The 30 year low order book means that fundamentals remain in place for continued strong freight environment.
And now we start the Q&A session and I, therefore hand, the word back to the operator.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question. Please press the pound Passkey. Once again, please press star one on your telephone keypad.
Your first question today comes from the line of Greg Miller. Please go ahead. Your line is open.
Is that is that many of my own line.
Yes, you are.
Okay, Yeah, I think I think shipper and I think she mispronounce my name.
Hey, guys. How are you doing good afternoon, and thanks for taking my question.
Thanks for the detail on the slide what we kind of head wind you know some of the challenges facing the Cape market that at the start of the year.
You know clearly the last few weeks that they had been very constructive for the Cape market. Despite some of the ongoing challenges of German or could.
Could you talk a little bit about you know what you're seeing in the Cape market that has really kind of help.
That market starts to recover and get back where it traditionally as a bubble.
Moller vessels.
In terms of rate.
Yeah sure Hi.
And good afternoon to you.
Yes, it has been a quite a.
Construction of a few weeks as you as you pointed out with now a cape rates are.
In the mid third is so and so that's good to see.
As always with these things it's a combination of several factors are driving the market, but the main the main two reasons. So I would point to is a very very inefficient allocation of cold.
And with Washington coal now.
What about should be banned.
Since in many a.
Perhaps for many practical purposes already being banned.
We see a we see it she called going from from places. So we have not seen before that is a that is helping at the same time. We are now through the through the rain season in Brazil.
And we have seen volume returning to the to the market with it with cargo and that is a that is obviously, causing a.
The optimism into and of course longer.
Okay.
Heavy demand and so it would be the two main affect us I Wouldnt I would point to it being behind the driver being the drivers behind the chicken and if you ask me just for just one last comment we think that we have turned <unk> turned the corner now with the with the rates putting them out here as well about a month ago.
And from here on we expect a F M Cape market, albeit as always nothing is a strange and shipping that would be volatility, but it but we certainly we certainly see yeah, we certainly see a strong market from here on.
And then and then I did want to touch on that that you know and thank you for those comments.
Clearly Russia has had has is that it is important to the coal markets.
Low walk through those those volumes as it is.
As we as we think about you know changing trade patterns.
And realizing that the grain is later in the year, but let's talk about coal now.
As we kind of go through that has the market kind of stabilize though were handled the disruption from Russian coal or is that something that probably continues to play out over the next few months.
In my view, that's going to continue playing out that's a scramble right now four four for quote primarily oh, well leading by.
For example, and this is in India that have been been acquiring a lot of cold, but also but also Europe .
I've seen the coal cargoes from the Australia going into Europe , which.
It really tells the story about how efficient sorry inefficient. This is and we think that that's a can you say.
That's like a structural change in the trade patterns around court because we expect our we expect most countries to a 222 to try and outpace or energy.
Some outages in general from from from Russia. So so we we expect disappear if not a permanent situation and certainly a longer term sort of thing and this is very good news for the for the Capesize vessels of course.
So and so for the next few.
A few months.
Perhaps also until the end of the year into next week, we expect their culture to contribute to a two ton mile are quite heavily for the capesize vessels.
Okay, Great and then there's just one more for me it's around fuel spreads clearly those have risen again, where the delta between you know high sulphur low sulphur fuel oil is pretty attractive as we think about vessels going into dry docking.
Maybe maybe just we'll just think about this year you know realizing that a lot of larger basketballs that already have scrubbers installed are there thoughts or plans to install any additional scrubbers on any vessels as we move forward in 2022.
We have a little more.
More than 50% of our fleet scrubber fitted and we are very happy with that.
And investing more on scrubbers I can categorically say, we will not be doing that.
And we are focusing on decarbonization efforts and interesting into upgrading all vessels with a lot of all the can you say energy saving devices and we think that is a that is the way forward to reduce emissions and reduce ship bunker consumption rather than investing in a in a scrub up playing in.
Fred play in essence, so and so no you would not be seeing us investing in our in and scrub us, but rather in a in a in all the types of technologies to bring down our emissions and pollen fungi.
Okay perfect I. Thank you for the time everybody.
Thank you.
Thank you. Your next question comes from the line of command Marlins from value Investor's edge. Please go ahead. Your line is open.
Good morning, gentlemen, thank you for taking my questions.
You have one of the youngest fleets in the sector, which provides quite a significant edge in the current environment given lower fuel consumption.
Vessel values remained well supported by freight rates and I was wondering if you could provide some commentary on the oldest portion of your fleet like the vessels built prior to the two vehicle component being widely available.
Are they still deemed like a central part of the fleet or is it something you will potentially look to the best in the medium term.
And thank you for your question.
So you're absolutely right, we have a the youngest fleet among the large listed illness and that is obviously, giving us a good starting point.
Thinking about decarbonization and future recommendations, but also of course are extracting a lot of value out of the out of the market, having said that the we cannot stand still and we will be looking and we have already analyzed all fleet in that respect.
On which vessel saw can you say if possible to upgrade and to make future proof and which ones will the will the will have to be sold off because our strategy is to bring down emissions are going forward. So so what.
It's always prudent as a ship owner to sell when markets are strong and we will do that but we would look not only at the age but also at the at the performance of the of the vessels and what investments would otherwise be required.
To keep them competitive so the short answer is yes, we would sell the vessels we have sold seven vessels this year, Oh, well the past 12 months already and.
And we feel we can also do that having a quiet the 18 vessels last year and also have seven on order.
Indeed, that's helpful and do you expect to incur into significant capex expenses due to the upcoming regulations.
Or is it something you believe will be negligible for your fleet.
I would actually even at a relatively negligible.
What you have to remember is that I.
I mean for US we wouldn't have to do anything to be more or less and it wouldn't have to do anything to being compliant with idle, but how you need to think about this is that if you can make an investment into a and energy saving device lets say low friction paint you mentioned something.
And you can get a payback time of 12 months you bring it up because you bring down your bunker consumption and you'll have four yesterday next dry dock.
Just a good sound investment. So you say that can you say are you save the fungus and it's a it's a relatively easy investment, so so and and and.
Low investment so these capex would not be particularly significant but they would all have or at least those we are looking at in terms of upgrading to people all have relatively a short payback time, so it would be.
Very smart not to check this low hanging fruit. So that's what we that's what we are doing.
Basically just laid you meet with the scrubbers alright that does it for me. Thank you for taking my questions and congratulations for this quarter.
Thank you. Thank you.
Thank you as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad now.
One if he would like to ask a question.
There are currently no further questions I will hand, the call back Tees.
Thank you for dialing in and have a nice continued day.
Thank you. This concludes today's conference call. Thank you for participating you may all disconnect.
Okay.
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