Golden Ocean Group Ltd (GOGL) 2019 Q2 法說會逐字稿

完整原文

使用警語:中文譯文來源為 Google 翻譯,僅供參考,實際內容請以英文原文為主

  • Operator

  • Good afternoon, ladies and gentlemen, and thank you for standing by.

  • Welcome to today's Golden Ocean Group Limited Q2 2019 Earnings Conference Call.

  • (Operator Instructions) I must advise you that this conference is being recorded today, Thursday, the 15th of August 2019.

  • I would now like to hand the conference over to your speaker today, Birgitte Vartdal.

  • Please go ahead, madam.

  • Birgitte Ringstad Vartdal - CEO

  • Thank you.

  • Good morning and good afternoon, and welcome to the Second Quarter 2019 Earnings Call for Golden Ocean Group Limited.

  • My name is the Birgitte Vartdal, I'm the CEO of Golden Ocean Management.

  • And together with me, I have Per Heiberg, CFO.

  • We were happy to see how the market has developed so far in the third quarter even though we are reporting our weakest quarter in years for the second quarter of 2019.

  • As usual, Per will take you through the company update, and I will revert on some comments about the current markets and about our strategic positioning.

  • Per Heiberg - CFO

  • Okay.

  • Thank you, Birgitte.

  • Golden Ocean reports a net loss for the quarter of $33.1 million and a loss per share for 33 -- $0.23 for the second quarter of 2019, this compared to a net loss of $7.5 million loss per share of $0.05 for the first quarter.

  • This result includes a mark-to-market loss of $13.3 million mainly related to falling U.S. interest rate levels and a reversal of the mark-to-market profit on FFA contracts.

  • Adjusted EBITDA ended up $21.1 million, down from $36 million in the previous quarter.

  • We have declared the remaining 4 options to install exhaust gas cleaning systems, so called scrubbers, bringing the total amount for scrubber installations to 23 for the company.

  • During second quarter, we completed the refinancing of the 14 vessels bought from Quintana back in 2017, which will significantly reduce interest rates -- or interest expenses and cash breakeven going forward.

  • In the second quarter, we invested in Singapore Marine, that has set the goal to be a significant operator in the larger vessel classes.

  • And through that, we'll contribute to our existing operations through both valuable trading knowledge and profitable return on the investments.

  • As we announced earlier this week, the company has entered into a term sheet to establish a joint venture with Frontline and Trafigura for supply of Marine fuels.

  • And on the back of the current strong markets, the company announced a dividend of $0.10 per share for the second quarter of 2019.

  • Moving onto the P&L.

  • Despite a slightly stronger average market index in second quarter compared to first quarter, our time charter equivalent or TCE revenue decreased by $8 million compared to the previous quarter.

  • The decrease is a reflection of the weak market at the start of the quarter, which -- with [fixings] affecting most of the quarter.

  • The market did not see material improvements until June, which was a bit late to be reflected in our quarterly P&L.

  • Ship operating expenses, including dry dock and estimated OpEx on short-term lease in vessels, ended up $48.7 million for the quarter.

  • Of this, $6.7 million relates to dry docking of 8 vessels compared to $1.4 million on 3 vessels in first quarter and $4.7 million relates to estimated OpEx on leased vessels.

  • Effectively, the running OpEx on our own fleet is marginally down compared to previous quarter.

  • The G&A was stable over the quarter at approximately $3.5 million, while we had an extraordinary depreciation in the quarter resulting in an increase of $1.1 million compared to the prior quarter.

  • Net financial expenses are down by $1.1 million compared to the prior quarter.

  • This is mainly due to the full quarter of reduced interest cost on the convertible bond that was repaid in January, together with lower margin on the refinanced debt.

  • In second quarter, we booked a net loss of $11.8 million related to marketable securities and derivatives.

  • This is mainly related to a loss on our U.S. interest rate swaps, entered into for hedging purposes, but we booked that mark-to-market, and it's a reversal of earlier mark-to-market profit on FFA options that the market -- since the market recovered during second quarter, following the downturn, leading to a profit in the first quarter.

  • These losses were partly offset by unrealized profit of $1.6 million, related to our shareholding in corporate brokers.

  • Adjusted EBITDA came in at $21.5 million for the quarter and achieved TCE per day was $11,629 compared to $13,131 for the previous quarter.

  • Looking at the cash flow.

  • For the quarter, we entered it with $199.2 million and ended it approximately $36 million lower.

  • Despite that, we had a positive cash flow from operations; a net cash from financing of the nonrecourse debts into the new full recourse debt added $3.5 million, with ordinary repayment of existing debt was $16.6 million during the quarter.

  • The company used $18 million on investing activity, of which $10 million was invested in Singapore Marine and the remaining $8 million relate to investments scrubber installations and ballast water treatment systems.

  • And the company also paid $3.6 million or $0.025 in dividend for the first quarter during second quarter.

  • Following all the mining cash outflow, we ended the quarter at still a relatively strong cash balance of $163.3 million.

  • Looking at the balance sheet.

  • The most notable change this quarter is, in addition to the cash flow effect, it's the impact of the refinancing of the nonrecourse debt, which reduces the current portion of long-term debt by $73 million and net of ordinary repayment to long-term debt, the regular long-term debt has increased correspondingly.

  • At the end of the quarter, the company's book equity was at 51%.

  • Following the refinancing, related to 14 vessels bought from Quintana in 2017.

  • All long-term debt is now aligned on structure and on covenants.

  • Long-term debt in the company are backed by assets, and we have no outstanding long-term corporate debt.

  • In addition, we have a separate loan tranche available on certain of the vessels to be fitted with scrubbers.

  • Going forward, the company will pay $21.2 million in regular repayment of debt on a quarterly basis and average interest rate of the debt been reduced to 225 basis points above LIBOR.

  • As you can see from the graph, the various loan matures over a 6-year period starting with 1 facility that matures at the very end of this year.

  • We are in the process of refinancing that facility and expect that to be completed well ahead of its maturity dates.

  • In the P&L, the company showed fully burdened OpEx costs, including dry dockings and fee to external managers.

  • The running OpEx is relatively stable at 5,200 of Panamaxes and 5,600 of Capes.

  • During 2019, we expect 19 vessels in total to be dry docked, and 9 of them will also have ballast water treatment systems installed during the same dry docking.

  • Installation of scrubbers has commenced and so far, 3 vessels are completed, while we expect 12 more scrubbers to be installed during the remainder of this year and the last 8 of the 23 in total to be installed early 2020.

  • Looking at the fleets and after this, the core fleet was unchanged since previous quarter and still consist of 77 sailing vessels, of which 46 are Capes, 16 Panamax/Kamsarmaxes, 12 ice class Panamaxes and 3 Ultramaxes.

  • During the most recent uptick on markets rate, the company have taken some more cover for the remainder of 2019 and some for 2020 as well.

  • In this context, it's worth noting that we only include long-term cover in this overview.

  • Voyage pictures and short-term charter contracts are not included as we see those as a part of the spot business, even if such voyages can last up to 90 to 100 days and give cover well into the coming quarter.

  • This also includes good cover on our ice class Panamaxes, trading on pre-agreed COA during third quarter.

  • For the Capesizes, we have then currently fixed out the equivalent of 8 vessels at fixed rate of an average of $20,440 for the remaining year -- or remainder of this year.

  • And 1 vessel has been converted from fleet -- from index linked to a fix rate of $20,500 throughout 2020.

  • The cover for the Panamax vessels is more or less unchanged from the previous quarter, with 8 vessels fixed out from now and until the end of 2021 with some various expirations but the net average of $18,690 per day.

  • The various charters -- and yes, as I said, between April 2020 and throughout the end of 2021.

  • On top of this cover, we have 6 floor-ceiling Capesize contracts for 2019 and 2 for 2020, securing the downside at approximately 15,000 by giving away an upside about 29,500.

  • These contracts have proven to be highly effective during the downturn experienced in first half of the year.

  • And that ends my presentation.

  • And I hand over to Birgitte, who will take you through the macro and strategic outlook.

  • Birgitte Ringstad Vartdal - CEO

  • Thank you, Per.

  • As an introduction to the macro, I think it's fair to say that we're talking about the macro environment and dry bulk is obviously impacted by the volatile time that we see in the global economy.

  • I think, however, there are some interesting effects as well that can positively impact dry bulk, and I will touch base on those when I go through the presentation.

  • Looking back at utilization, during the second quarter, we saw a slight increase compared to the prior quarter.

  • Fleet supply grew modestly with new deliveries partially offset by scrapping of older vessels.

  • Looking at demand, the seaborne transportation was mostly unchanged compared to the last quarter and the second quarter of 2018.

  • However, the quarter started on a very weak note caused by the sharp reduction in iron ore volumes following the Vale accident earlier in the year, which have been well covered.

  • Iron ore production has now begun to come back online, rates have surged and have been at profitable levels since the start of June.

  • And we expect to see a report -- to report increased utilization rates in our next report.

  • Focusing on demand.

  • Volumes measured at the time at it's been imported, for there is a slight delay compared to if you measure at the time of export, were remarkably stable quarter-over-quarter despite a drop in iron ore and the impact of trade war on the agri trade.

  • Aside from iron ore, coal imports remain high, with growth driven by China and India.

  • Agri volumes grew compared to the first quarter but reduced relative to the second quarter of last year, and other bulks continues its positive trend showing strong growth quarter-over-quarter.

  • I would like to mention bauxite, in particular, which is having a strong growth, and which is currently around 6% of the Capes rate.

  • Moving on to iron ore.

  • As we discussed on our last call, market expectations for growth in iron ore changed following the tragic accident in Brazil at the end of January.

  • In total, 90 million tonnes of Vale iron ore production was halted at the end of the first quarter.

  • While Vale continued for a while to supply volumes from port stock plan, this wasn't sustainable, and Cape rates fell to very low levels by the end of March.

  • On top of this, which may be have been a bit under communicated, there were several weather-related issues in the northern system in Brazil, which also put pressure on export.

  • Since the end of the first quarter, $42 million of halted production has been restored, which have had a dramatic impact on rates.

  • The halt on the restart in production created a supply imbalance of vessels as there were more than 20 vessels waiting outside Brazil for cargo at one point.

  • As the cargo came back, most of those vessels were heading front hall at more or less the same time, and while we had secured other vessels in the markets to cover up for the lack of Valemaxes available.

  • We expect some of these vessels arrive in China.

  • Quite a few of them will have to install scrubbers, which will keep capacity constraint and which will be very interesting to follow going forward.

  • Vale anticipates to restore an additional 20 million tonnes of production by the end of the year and the remainder within the next 2 to 3 years.

  • If we compare to last year, Vale was initially guiding an increase for 2019 of around 30 million tonnes.

  • So based on what they actually anticipated to restore, the production should be more or less in line with the 2018 production over time.

  • Australian production as well has rebounded following a cyclone in March that constrained the production in the rest of the country.

  • And the Q2 export was strong ahead of their financial year close.

  • Steel production is key to the iron ore trade and the thermal coal trade.

  • And due to supply constraints, iron ore prices were very high in the first half of the year.

  • Despite this, global steel production increased in the quarter, growing 5% year-over-year, led by nearly 11% increase in Chinese steel production, while it was flat in the rest of the world.

  • This follows additional stimulus program from the Chinese government, which has had a positive impact on investments and infrastructure spending, and steel margins continue to be positive despite the high cost of raw materials.

  • This also responds to the international trade wars and uncertainties in the global economy.

  • And as I mentioned at the beginning, this has been a positive factor for the dry bulk market this year.

  • Higher iron ore prices following the disruptions of Brazil and the weather-related supply disruptions have led to a drawdown of stocks in Chinese ports and the steel mills.

  • With iron ore prices now coming down and volumes of iron ore coming back in international markets, we expect to see a flattening of stockpiles of iron ore.

  • And potentially, we can see also return of stock building of iron ore later in the year.

  • Moving onto coal.

  • As mentioned earlier, coal imports to China increased after the import restrictions put in at the end of last year were lifted.

  • And volumes in the second quarter were actually up 17% year-over-year.

  • However, coal stocks in China are relatively high, and there are reports that the Chinese government will cap the 2019 imports at the same level as last year, which would negatively impact the fourth quarter volumes.

  • Imports into India have been up an impressive 30% compared to last year.

  • Stockpiles are high in a historical context, but not significant compared to the growing demand.

  • In India, like China, would like to support their local coal production and look to increase the domestic production.

  • But as opposed to China, their growth has not been sustainable in the domestic production and import volumes have been compensating for the lack of growth in the domestic production.

  • Chinese electricity production grew by 5% year-over-year in the second quarter.

  • And thermal coal makes 70% of the total balance of production.

  • This is a decline from past quarter due to seasonal higher hydropower electricity production, which should continue for a few months before it drops back going into the winter season.

  • Despite the decline in thermal coal and electricity as part of the total energy mix, coal consumption continued to grow on an absolute basis.

  • The U.S.-China trade war continues to have significant effects on U.S. grain exports as can be seen on the bottom graph.

  • The swine flu in China has also impacted demand for grain.

  • South American export volume declined in the second quarter along with the U.S. volumes.

  • The trade war had an extremely negative impact, and unless there is a relief, volumes from the second harvest season may be lost.

  • Total exported volumes, however, remained healthy.

  • And Brazil has compensated most of the shortfall in U.S. exports.

  • And we saw that the Chinese came back in the market and immediately bought more soybeans from East Coast, South America, once the U.S. announced increased tariffs last week.

  • From a shipping perspective, exports from Brazil or export from the U.S. is more or less similar in terms of days.

  • Moving onto supply.

  • Despite deliveries in the second quarter, totaling 10 million tonnes, up from 8.6 million in the first quarter, fleet growth in most segments have been modest.

  • In the Capes segment, 4 million deadweight have also been scrapped so far this year.

  • So the net fleet growth rate for Capes have had a decline in the second quarter -- in 2 quarters in a row.

  • In the Panamax segment, there was an increase in the net fleet growth as very few vessels have been taken out of the market.

  • Looking ahead.

  • Currently, the order book represents around 10.5% of the current fleet, and in nominal terms are as low as in a very long time and have not changed a lot lately.

  • Few new orders have been reported over the last few months.

  • This data represent an estimated fleet growth gross for around 6%, which, to me, seems to be a bit high as we expect some delays and possibly some of the orders are not -- are historic orders that may not materialize.

  • Around 13 million deadweight tonnes were ordered in 2015 or earlier of the current order book.

  • Final deliveries should definitely not be as high as the order book numbers indicate.

  • Net fleet growth will, in addition to demolition, be affected by the IMO 2020 disruptions, including off-hire for scrubber installations, cleaning of tanks and timely availability of new types of fuel.

  • I believe that off-hire-related scrubber installations is impacting in the market positively as we speak, and this should last at least through the first quarter of -- be a supporting factor at least through the first quarter of next year.

  • The scrapping activity picked up earlier in the year, also in a period where the market were weaker and a total scrap of 4.2 million deadweight in tonnes at this time.

  • This is a level not seen since the market was low in 2016.

  • The majority occurred in the first quarter of the year, but almost 2 million tonnes was also scrapped in the second quarter.

  • This is a natural reaction to a weak freight environment.

  • The historical relationship between strong rates and lower scrapping may be disrupted over the next year as all the vessels become less viable in a higher-fuel price environment.

  • In a weak market environment vessels above 15 years of age are more likely to be scrapped as investments in ballast water treatment systems, the dry dock itself, and the lack of a scrubber will both imply higher cost and a lower earnings potential.

  • Looking at the sale and purchase market.

  • It was very muted activity at the beginning of the year.

  • The activity has picked up a bit lately, but the transactions have been focused on the Panamax and Supramax segments and the middle-aged to older vessels, mainly.

  • And there has not been a lot of activity in the Cape side segment this year.

  • Secondhand values have remained relatively steady lately, and time charter rates have picked up recently in contracts.

  • We would like to remind the fact that in the resale market, there is a clear preference for modern ECO tonnage and enclosed this -- in this slide, we have data for modern ECO and non-ECO vessel.

  • The value spread between the 5-year-old of the 2 different classes is quite big, and the ECO vessel commands a significant premium.

  • Following the implementation of IMO 2020 sulfur regulations, one should expect that less fuel-efficient vessels, unless they are retrofitted scrubbers, will fall further out of favor due to higher fuel consumption.

  • Looking ahead, the implementation of IMO 2020 is just over 4 months away.

  • We expect to have scrubbers installed on 23 of our Capes by the end of the first quarter of 2020.

  • This is an investment we believe will lead to stronger earnings potential.

  • The 23 vessels represents 50% of our Capes fleet and 2/3 of the part of the fleet where they have economic interest in exposure to fuel prices as 10 vessels are chartered out for a longer period on index-linked time charters.

  • We have consistently installed the scrubbers in line with our dry dock schedule.

  • Although, a few of the 2020 dockings have been moved into the first quarter of that year.

  • We are also pleased to have announced earlier this week that Golden Ocean, together with Frontline and Trafigura Group, have entered into a nonbinding term sheet for a joint venture that aims to be one of the world's leading suppliers of Marine fuel.

  • Trafigura is one of the largest physical commodities trading groups in the world and has an existing physical bunkering business that has a broad geographic footprint and will be contributed into the joint venture.

  • Subject to agreement on final terms, the joint venture will commence operations in the third quarter, and Golden Ocean will have a 10% equity ownership.

  • From an operational point of view, having access to a wide variety of Marine fuels at competitive prices is important as the industry prepares for potential logistical issues that may limit availability in certain ports and also for issues relating to different fuel blends and specifications.

  • We believe that our joint venture with Trafigura and Frontline will ensure that we have prompt access to both high-sulfur fuel and compliant fuels.

  • Setting aside the economic opportunity, we have either created a further competitive advantage or at least protected ourselves against a significant potential risk.

  • After a disappointing first half of the year, the [straw] rates collapsed with the disruption in iron ore.

  • We are obviously pleased with the current market environment.

  • Rates are well above cash breakeven levels, and we're clearly well positioned to generate significant cash flow in the third quarter.

  • We are also certain that the market will continue to be volatile and not without complications.

  • And for this reason, we continued to opportunistically add coverage at profitable levels through fixed contracts and contracted floor/ceiling structures at the time when the forward curve was at its high in July.

  • The forward curve is in backwardation, and the spread between the current spot rates and the calendar 2020 is now huge.

  • So at the moment, we will play the spot market mainly and wait until we potentially see an adjustment in the forward curve, before we add coverage at the further end of the curve.

  • Headlines continue to move both the freight and equity market, but our outlook remains constructive, and we are focused on controlling things we can control and maintain our strong financial profile with low cash breakeven levels.

  • Our balance sheet is strong, and we have a significant liquidity position.

  • And as a reflection of this and performance so far in the third quarter, the Board has decided to declare a dividend of $0.10 per share.

  • We will also continue to review additional measures to create value for our shareholders, including potentially additional share repurchases.

  • We have limited CapEx requirements related to installation of ballast water treatment systems, a requirement for all vessels that were built without this, which typically is for vessels built earlier than 2014.

  • And 48 of our vessels have ballast water treatment systems installed.

  • The remaining cost is marginal and spread out over several years.

  • And we believe this is a competitive advantage of having a young fleet, which has not been so high in focus.

  • We are, on the contrary, investing significantly in upgrading our fleet this year with 23 scrubber installations.

  • The competitive advantage of the modern fleet is reflected in the way asset prices for modern vessels have held up and should, together with scrubber installations, significantly impact our earnings potential as we approach 2020 in an environment where higher fuel prices are very likely.

  • We are confident that the investments and the strategic initiatives we are undertaking will provide additional cash flow benefit heading into

  • 2020.

  • And this ends our presentation for today.

  • We are open to answer questions you may have.

  • Thank you.

  • Operator

  • (Operator Instructions) Your first question comes from the line of Greg Lewis.

  • Gregory Robert Lewis - MD and Energy & Shipping Analyst

  • In the slide deck, you clearly did a good job of explaining the overall macro picture.

  • But could we just dive a little bit deeper into what's going on in the Cape market?

  • It seems like it was really moving higher in July then pulled back a little bit here in August.

  • And then as we're looking at it over the last week, it seems like it's really got like a second leg behind it.

  • Any kind of color you're -- what you're seeing in the markets that kind of you think is helping push rates kind of reverse the downward slide we started to see as July was ending?

  • Birgitte Ringstad Vartdal - CEO

  • I think it's a bit back on and off with sort of the cargoes and when the miners are out fixing the vessels, also scenes like holidays or typhoons, et cetera.

  • So there is -- like the short-term volatility is may be reflecting such elements.

  • We feel that there is still a good demand in the market, and there is good activity on spot fixtures.

  • Obviously, with where the rates are now, and the -- where there fuel prices are, you potentially can see some speed increases over time.

  • But the demand side is there and combined with fewer vessels in the Atlantic market and potentially an imbalance with more vessels in the Pacific also preparing for scrubber installations and off-hire for scrubbers installations that is supporting the market that we see now.

  • Gregory Robert Lewis - MD and Energy & Shipping Analyst

  • Okay.

  • Great.

  • And then just -- and clearly, there was a nice increase in the dividend this quarter.

  • I mean as I look at Q2 versus Q1, maybe that doesn't sort of layout a reason to really be pushing the dividend.

  • But as we look forward, is that kind of how we should -- how should we be thinking about the dividend as it stands today and as we're looking into the back half of the year in this sort of strong-rate environment?

  • Birgitte Ringstad Vartdal - CEO

  • Yes.

  • I think you are right.

  • I think the decision on the dividend is very taken also in the -- when you are in the midst of the next quarter.

  • So it's not only a reflection of the quarter that we are reporting on but also a reflection of the quarter we are in.

  • So in a sense, you can say that the cut we did from $0.05 to $0.025 was in a way a reflection of Q2 and how the increase is a reflection of Q3.

  • So -- since -- I mean we have the investment in scrubbers and some ballast water and dry docks.

  • But beyond that, we don't have CapEx and we are fully financed.

  • So it's how we see the running cash flow and what capacity we have but still to maintain a decent cash position and a strong balance sheet.

  • So we don't have a very formula-based dividend, but we are willing to payout dividend when we view that we generate the cash flow to support it.

  • Gregory Robert Lewis - MD and Energy & Shipping Analyst

  • Okay.

  • Great.

  • And then just one last thing on the scrubbers.

  • Clearly, it's still early days.

  • But as you're monitoring the market, are you seeing any examples where charters are willing to pay a premium for vessels that have scrubbers on them?

  • Birgitte Ringstad Vartdal - CEO

  • Well, they are willing to pay a premium but not necessarily the premium you want to see if you look at the spread in the fuel prices.

  • And so mainly, the fixtures that we have seen have been a fixture on the time charter rate but with a profit splits, for instance, on the scrubbers so that the charter gets 50% and the owner gets 50%, or some with fixed rates, but then not getting the full benefit.

  • But in my mind, it looks -- or what we have seen so far is more of a profit split on the scrubbers.

  • Operator

  • (Operator Instructions)

  • Birgitte Ringstad Vartdal - CEO

  • Okay.

  • Well, we would like to thank you for listening in today, and we will speak again in 3 months from now.

  • Thank you.

  • Operator

  • That does conclude our conference for today.

  • Thank you for participating.

  • You may all disconnect.