Golden Ocean Group Ltd (GOGL) 2019 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Q4 2018 (sic) [2019] Golden Ocean Group Limited Earnings Conference Call.

(Operator Instructions)

I would now like to hand the conference over to first speaker today, Ola Lorentzon.

Thank you.

Please go ahead.

Thank you.

Good afternoon, and welcome to the Fourth Quarter 2019 Earnings Call for Golden Ocean Group.

My name is Ola Lorentzon, and I am Chairman and Interim Chief Executive Officer of the company.

Together with me, I have Per Heiberg, our CFO; and Thomas Semino, our Chief Commercial Officer.

Much like in past calls, Per will take you through the company updates and financials.

Then Thomas will provide his perspective on the current market environment, and then I will briefly conclude the meeting.

Before proceeding, I should note that the company's search for a permanent Chief Executive Officer is ongoing and we are actively searching for the most appropriate candidate for the role.

With that, I turn the call over to you, Per.

Thank you, Ola.

Golden Ocean reports net profit of $41 million and profit per share of $0.29 for the fourth quarter of 2019.

This is up from $36.7 million and a profit per share of $0.26 in the previous quarter.

The profit for 2019 in total ended at $37.2 million compared to $84.5 million in 2018.

Adjusted EBITDA was $73.9 million, down from $81.1 million in the previous quarter.

In December, we completed the refinancing of 15 vessels at attractive term ahead of the maturity of the prior loan facility, and we completed the amendment of 7 charter agreements with SFL to fund investment in scrubbers on these vessels.

It's available from the investment at charter rates for this will be increased.

The company announces a cash dividend of $0.05 for the quarter.

Moving on to the P&L.

Net P&L for the quarter was $41 million, an increase of $4.3 million from the previous quarter, and taking the profit for the full year to $37.2 million.

The strong market in third quarter eased off during the fourth quarter, but with a natural lagging of earnings and some reversal of U.S. GAAP adjustments from previous quarter of time charter equivalent or TCE revenue.

Net of charter higher paid increased by $4.3 million compared to the previous quarter.

Ship operating expenses, including dry dock and estimated OpEx on short-term lease in vessels, was $56.6 million for the quarter.

Of this amount, $9 million relates to dry docking compared to $1.6 million in third quarter, $6.2 million relates to estimated OpEx on leased vessel, which is at the same level as previous quarter.

Effectively, the running OpEx on our own fleet increased by $3.3 million compared to the previous quarter mainly due to additional costs in conjunction with increased dry dock activity.

The G&A increased slightly in the fourth quarter compared to third quarter, but full year G&A was slightly less than previous year.

Net financial expenses were down by $1 million compared to the prior quarter due to a decrease in LIBOR rates that had a positive impact on our floating rates loan portfolio.

Unlike last quarter, we booked a profit on derivatives amounting to $6.4 million in this quarter.

Most of it relates to profit on U.S. interest rate hedges with $3.9 million due to the increase in the forward rates as we book the hedges mark-to-market.

Further, we booked gains on both FFAs and bunker hedges, but took some losses on FX hedges.

We also booked an unrealized profit of $0.6 million related to our shareholding in Scorpio Bulkers, and we sold the shares in Scorpio tankers received as dividend for the net proceed of $1.1 million.

Adjusted EBITDA was $73.9 million for the quarter and achieved TCE per day was $21,668 compared to $19,727 for the previous quarter.

The cash -- moving on to cash flow.

The company ended the quarter with $139.3 million in cash and generated positive cash flow from operations of $84.1 million.

Increased working capital in third quarter was, to some extent, reversed during this quarter on top of an underlying strong cash generation.

As we refinanced one of our loan facility and drew down additional debt on one facility-related to scrubber investments, net repayment was only $12.2 million during fourth quarter compared to ordinary quarterly repayments of approximately $21 million.

The company paid $21.5 million or $0.15 per share in dividends for the third quarter payable in fourth quarter, and we repurchased 380,000 shares for a total cost of $2.1 million.

We also invested $25.4 million during the quarter, mostly this relates to installation of scrubbers and ballast water treatment systems on certain of our vessels.

Following other minor cash outflow at the end of the quarter, the cash at the end of the quarter amounted to $163.2 million, an increase of $23.9 million from the start of the quarter.

Looking at the balance sheet.

The most notable change this quarter is the reclassification of 7 of ours SFL leases from operational leases to financial leases.

The reclassification relates to shorter amendments made to finance scrubbers for 7 vessels, resulting in a fully updated classification test on the leases.

We determined that these leases need to be reclassified from operational to financial leases over the remaining lifetime.

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

Under our credit facility, we see that in December, we completed the new $155.3 million loan facility with 6 banks refinancing 15 vessels that were financed through prior $284 million facility.

The new facility has a 5-year tenure with an interest of LIBOR plus 210 basis points and has the same 20 years age-adjusted profile as the previous facility.

During the year of 2019, we have extended and refinanced 5 of our loan facilities.

We have postponed maturities significantly and repaid our corporate's debt.

The result is that now our earliest loan matures in March 31, 2021, and the remaining facilities mature from 2023 to 2025.

The company continued to amortize all debt on a quarterly basis with approximately $21 million per quarter.

The $17.5 million financing of the 7 scrubber installation on our SFL leases was fully drawn in early January 2020, and we have started to pay down to $1,535 per day per vessel and increased charter hire.

We drew down $9 million from our $420 million facility in December to finance scrubbers and the remaining $18 million in scrubber financing was drawn during January 2020.

The company has not made any amendments to existing covenants during the refinancings done in 2019.

Looking at the OpEx.

In the P&L, the company shows fully burdened OpEx costs, including dry dockings and fees to external managers.

The running OpEx increased slightly during fourth quarter mainly due to costs related to upcoming dry dockings.

Daily running OpEx ended at $5,100 per day for Panamaxes and $5,750 per day for Capes.

In the fourth quarter, we had high docking activity.

8 vessels completed dry docking during the quarter and 5 vessels were still in dry dock at year-end.

Scheduled dry docking activity is high for the first quarter of this year, and we managed to complete a few prior to Chinese New Year and the impact of the coronavirus.

Presently, the situation at the yard is a bit fluid due to the coronavirus, which has resulted in lack of workforce and difficulties getting equipment and spare part into China.

Today, it is not possible to be precise in the guiding of the outcome, but our dry dock schedule will surely be a bit delayed.

This also affects our plans to install scrubbers.

14 out of 23 planned scrubber installations have been completed so far.

The 9 remaining vessels that were scheduled for installation during first half of 2020 are currently trading in the market, and we are constantly monitoring the situation to determine timing of the installations.

The current long-term operating fleet of the company is 29 vessels, of which 46 are Capes, 16 are Panamaxes or Kamsarmaxes, 14 are ice class Panamaxes and 3 are Ultramaxes.

Given the current weak market, the company have not taken any additional long-term cover since the last report.

Although we do consistently utilize the best options to fix between short-term fixed charter, index-linked charters or spot voyages.

The total fixed-rate cover for 2020 is, therefore, relatively low, which will impact revenue in the present quarter.

That ends my presentation, and I hand over the word to our Chief Commercial Officer, Thomas Semino.

Thank you, Per.

Expectation for the new year were relatively positive as 2019 came to a close.

The market was resilient throughout the majority of 2019 in spite of severe iron ore production customers in Brazil and Australia at the start of the year and the continued overhang created by the trade tension between U.S. and China.

Freight rate peaked in the third quarter with vessel supply constrained due to the large number of scrubber retrofit projects that were underway, as iron ore exports began to increase.

The strength of the market in the third quarter impacted our results in the fourth quarter, as number of strong fixture were concluded in the third quarter for voyages that actually occurred in the fourth quarter.

As the year concluded, the decline in rates accelerated following the position of restriction of Chinese coal imports, which also occurred in 2018.

The dry bulk market has seasonal patterns, and the first quarter is generally the weakest quarter of the year.

2020, of course, saw emergence of the new coronavirus in China that is continuing to cause significant disruption in the trade flow.

The impact of the new coronavirus has been compounded by lower-than-anticipated iron ore output in Brazil due to heavy rain and disruption in Australia.

In the meantime, the new IMO 2020 sulfur restriction have seemly become a forgotten backdrop.

In outstanding current market conditions, it's worth spending a few minutes discussing our view of IMO 2020, as it relates to vessel economics and fleet supply.

At the end of 2019 and the start of this year, the spread between the high sulfur fuel and compliant fuel briefly [estimated] $300.

While the spread as things come in a bit, it is quite wide and sufficient to create significant competitive disadvantage for owners of older, less fuel-efficient factor.

This disadvantage is reflected in what seems to be a 3-tiered market comprised of modern ECO vessel, vessel equipped with scrubber and older vessels without scrubber.

In the current market environment, older vessels are earning particularly nothing, while modern ECO vessels are earning, again, closer to OpEx and scrubber fitter vessel are earnings above OpEx.

While market condition might be extreme at the moment, they are untenable for owners of older vessels.

The second-hand market is also pricing the same as the price premium for an ECO vessel as compared to a non-ECO vessel continue to increase.

The message from the market, it is very clear.

It is worth noting that the longer the weaker market persist, the greater likelihood the vessel will be scrapped.

In January 2020, 5 Capesize vessels were demolished, the highest figures since April 2019.

And there are reports that an additional 5 Capsize were scrapped in February and 9 vessels are already sold and will be scrapped over the next 6 months.

In the Capesize class, there are 74 vessels that will be over 20 years of age by the end of 2020, representing about 5% of the total Capesize fleet based on a deadweight tonnes and 230 vessels that will be 15 years of age or above by the end of the year.

The order book remains somehow flat.

We don't expect to see fleet contract, but any level of demolition is obviously [here].

With respect to the order book, the situation in China has already resulted in delays in new buildings and also of scrubber retrofit.

Yards and supply chain might take some time to resume normal operations, which would result in the late and perhaps more spread-out delivery schedule.

It is too early to forecast the potential impact of the coronavirus beyond the short term, but it is unlikely that the normal business operation will quickly resume.

Many market observers expect a swift recovery in the second half 2020.

We would, of course, we are convinced that if we execute, too soon to tell.

As the dynamic unfolds, we are focused on controlling the factors that we can control, including our commercial operation and the quality of our fleet.

When the market does recover, the notion is very well positioned to generate earnings, as our fleet is focused on the larger vessel classes, where rates tend to move the most dramatic fleet in other direction.

The modernity of our fleet and our plans to install scrubber on 2/3 of our vessels based on a total fuel consumption make the current market a bit more manageable, and we also like to create incremental earnings going forward.

With that, I would like to thank you for your time today and turn the call back to Ola.

Thank you, Thomas.

While Golden Ocean strong earnings potential has been demonstrated over the course of last year, the market is currently presenting a challenging -- challenge that will impact our results in the near term.

Despite near-term factors, we are confident of the medium-to-longer-term development of dry bulk transportation demand.

And as the current market dynamic continues to unfold, our focus remains on maintaining efficient operation, a strong balance sheet and a strong liquidity position.

Thank you for listening.

Thank you.

This is the operator.

Thank you for participating.

There is no Q&A in this conference.

If you have any questions, please contact the company.

And once again, thank you for participating.

There is no Q&A in this conference.

If you have any questions, please contact the company.

That does conclude our conference for today.

Thank you for participating.

You may all disconnect.