Golden Ocean Group Ltd (GOGL) 2021 Q3 法說會逐字稿

Good day and thank you for standing by. Welcome to the Third Quarter 2021 Golden Ocean Group Limited Earnings Conference Call. (Operator Instructions) Please be advised today's conference is being recorded. (Operator Instructions)

And I would now like to hand the meeting over to your speakers today and Ulrik Andersen. Please go ahead.

Good afternoon, everyone. Welcome to this Q3 release. My name is Ulrik Andersen and next to me, I have Peder Simonsen, our CFO.

Today, we are here to give you insight and outlook, insight into how Golden Ocean has been doing and what we're expecting in the near future. The overall message for this release is a strong and solid financial performance combined with a timely hedge of Q1 next year. Basically, what we will show you during the next 15 to 20 minutes is that we have capitalized on the strong Q3 while securing attractively priced forward cover, that we continue to pay out a significant portion of our net profit in 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 shy of $230 million, which translated into a net income of $195 million or $0.97 per share. We also entered into an agreement for the construction of 7 Kamsarmaxes. Securing new vessels have allowed us to divest older tonnage. And this quarter, we sold 2 vessels at attractive prices. Our strategy is to continue to divest our oldest tonnage.

We also completed the refinancing of the Sterna facility on very favorable terms, reducing our cash breakeven at the same time. We report TCE rates of $38,100 per day for the Capes and $24,700 for the Panamaxes. Looking at this quarter, Q4, we have so far secured $42,000 per day for 82% of our Cape days and $27,000 per day for 86% of our Panamax days. In other words, Q4 has the potential to be better than Q3. Looking into next year, we have secured approximately $33,000 per day for 30% of our Cape days and approximately $24,000 per day for 36% of our Panamax days.

Finally, we announced a dividend of $0.85 per share. This is our third quarterly payout, and it will take the 2021 dividends to $321 million.

Now let's dive into the numbers and details and have a closer look at the Q3 financials. Peder, over to you, please.

Thank you, Ulrik. We recorded Q3 time charter revenues of $307 million, which was up by $94 million from the previous quarter. We had strong uplift in all segments, as Ulrik mentioned, TCE rates of $38,000 for Capes and $25,000 for the Panamaxes. We are up, respectively, $6,000 and $9,000 for the Panamaxes and Capes compared to the previous quarter; total TCE rate of $32,300 versus $24,900 in Q2. We had 1 ship dry-docked in this quarter versus 3 ships in Q2, which resulted in an off-hire days of 0.9% or 85 days versus 150 days in Q2.

Looking at our OpEx, we recorded $52.4 million versus $50.3 million in Q2. This was a slight increase in running OpEx but adjusted downwards by fewer ships dry-docked this quarter. We continue to see COVID-19 impacting our operating expenses, which we estimate to around $350 per day impact in Q3, the costs mainly relating to crew changes and quarantine hotels.

On our general and administrative expenses, we recorded $4.6 million in Q3, which is equal to what we recorded in the previous quarter, where we maintain the best-in-industry cost level. This equals $500 per day in G&A costs and was impacted also by $900,000 profit-sharing accrual or $100 per day impact.

Our charter hire expense was down from $33 million to $31 million this quarter, which mostly reflect that we took delivery of the Hemen fleet during Q2, of which many ships have been chartered in in previous quarters. This was offset by higher rate levels on chartered-in tonnage and high trading activity. The depreciation was also impacted by additional new ships during Q2 as well as our net financial expenses, where we saw a higher average debt level stemming from the new ships entering the fleet.

On our derivatives and other financial income, we recorded a positive $16.7 million result, which mainly relates to a derivative increase in mark-to-market positions of $5.6 million versus $14.6 million in Q2. Of this, our FFA portfolio increased by $5.1 million, and our interest rate portfolio increased by $0.6 million.

Our results from associates mainly related to an increase of $11.3 million for our investment in dry bulk operator, SwissMarine, and a total positive result -- in results from associates of $11.1 million. Our marketable securities was down by $0.4 million, which relates to our shareholding in Eneti. This resulted in a net profit of $195.3 million or $0.97 per share versus $104.5 million and $0.52 per share in Q2. And as Ulrik mentioned, the dividend was declared of $0.85 per share for the quarter.

Moving to the next slide, we can look at our cash flow, where we can see we recorded a cash flow from operations of $200.5 million in Q3. This is a result of more ship days and higher rate levels recorded in the quarter. Our cash flow used in financing and investments was net $112.9 million, which largely relates to a positive cash flow from refinancing of the Sterna facility amounting to $15 million net of financing fees. Further, a $34 million scheduled debt and release repayment was recorded in the quarter. And finally, we paid out $100 million in dividend relating to the second quarter results.

Looking at our balance sheet, we have had a cash position of 62 -- $262.5 million, which includes a $20 million restricted cash balance, which secures our interest rate and FFA derivatives portfolio. We had total debt and lease liabilities of $1.5 billion and book equity of $1.9 billion, which based on the total assets of $3.5 billion gives a ratio of equity to total assets of approximately 54%.

Moving to the next slide, we can look at the overview of our debt maturities and CapEx for the coming years. As you can see, we have no debt maturities until mid-2023, and thereby -- thereafter, evenly distributed over the coming years. With very strong liquidity and balance sheet and a strong banking group with new banks added to the recent financings and a very low leverage, averaging 43% loan-to-value on our fleet, we expect that these maturities will be refinanced at very attractive terms.

Looking at our CapEx, we have put in orders for 7 modern Kamsarmax ships that will deliver from mid-2023. This is part of our fleet renewal program, where we have also sold off 4 ships during the year, predominantly in our older Panamax segment. We have to date at this report paid 1/3 of the estimate equity CapEx for the ships, and we will continue to opportunistically seek to divest older tonnage.

With that, I give the word back to Ulrik.

Thank you, Peder. Now let's turn the attention to the market development in Q3 on Slide #10.

Q3 was a positive quarter with the utilization rate reaching 98%. This is the highest level we have seen in more than a decade. Naturally, this firmed up the market, which increased steadily throughout the quarter for both segments. The 3 main drivers were the continued inefficiencies and congestions, a strong growth in the coal trade and rising Brazilian iron ore shipments.

Looking ahead, we remain very bullish for what lies ahead. Q3 was a good quarter, but as our right -- rate guidance indicated, Q4 has the potential to be even better. In fact, the stage is set for a prolonged period of solid demand growth for dry bulk commodities well into 2022 and beyond.

GDP growth is a good proxy for dry bulk demand. It is key to remember that for the past 20 years, on average per year, the demand for dry bulk shipping has been growing 20% more than the world GDP growth. Even if GDP growth is tempering off slightly next year, it is, firstly, compared to an exceptionally strong 2021; and secondly, still growth rates that are high compared to the historic average. In our view, the anticipated growth will continue to support a strong freight environment.

So we face what looks like a favorable demand side. But what about the other side of the equation, the supply side? Well, 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. Going forward, we do not see ordering picking up. The prices are at a historical high level, while there's no clarity on what propulsion technology is truly future-proof. It is, in any case, unlikely to get newbuilding slots before the very end of 2023. It gives us a runway of minimum 2 years with very modest fleet growth.

So when we combine the anticipated supply growth with the anticipated demand growth on Slide #20 -- 13, much point to an extended period of sustainable earnings. The story of dry bulk has the past 18 to 20 months been about demand, driven by the massive stimulus that has been employed by governments around the world. But we see that is about to change. The stimulus will naturally temper off over the coming 6 to 12 months, and the growth will return to a normalized level in 2022 and 2023. But because the fleet growth is de-accelerating hard, demand, even at normalized levels, will still comfortably grow faster than the supply.

That we are changing from a demand story to a supply story is positive. Since 1991, the demand for dry bulk shipping has been growing by an average of 3.9% per year, and only 2 years in that period did it retract: during the financial crisis in 2008 and during COVID in 2020. In other words, it is normally the owners building too many vessels which causes the markets to come under pressure, not the lack of demand. This time, the supply side is well under control, at least for the next 2 years, but likely for longer.

Turning your attention to the near-term future. Golden Ocean has been active in the past 6 -- 3 to 6 months. We have secured a large portion of high fixed-paying TCE deals to mitigate risk, secure dividend capacity and build a bridge between the usually weaker Q1 and the rest of the year. As of today, we have for Q1 next year 30% of the Cape fleet fixed around $33,000 per day and 36% of our Panamax fleet fixed at around $24,000 per day. And mind you, all these are net figures. It means that for Q1, we currently have contracted $73 million of TCE revenue on just 32% of our fleet.

On the last 2 slides 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 on our fleet. Our average cash breakeven is $12,700 for the Capes and $8,500 for the Panamaxes. The cash breakeven is all in and includes amortization, interest and G&A.

As it appear on the right-hand side, our breakeven allows for strong earnings in today's market, but at the same time, it also acts as downside protection. The Cape market, for instance, has not been below our cash break-even levels for very long in the past 5 years.

With our low cash breakeven and the strong market outlooks, Golden Ocean's cash flow potential is substantial. As of Monday this week, the blended average of Cape and Panamax rates reflecting our ratio of Capes and Panamax vessels was around $25,000 per day. On an annualized basis, that means generating almost $500 million over our cash breakeven or a yield of more than 30% on Monday's share price.

It's a Board decision what we will do with future earnings, but we have made no secret of our policy of paying back to our shareholders a significant portion of our net profits, something we have delivered on in the first 3 quarters of the year, paying out $321 million.

Before opening up for questions, I'd like to shortly wrap up the 3 main points from this release. Golden Ocean capitalized on the strong Q3 market, making almost $200 million in net profit. Golden Ocean has timely secured $73 million of TCE revenue for Q1 next year, thereby bridging the usually weakest quarter of the year. Golden Ocean is well on track and expect 2021 to be the most profitable ever in the history of the company.

And now we start the Q&A session. I therefore hand the word back to the operator. Thank you.

(Operator Instructions) And we have a question from the line of [William Fraser].

Fantastic quarter. Congratulations.

Thank you.

The question -- I have a couple of questions. On the period cover, I see you have about 30% to 35% in Q1. Does any of that extend into Q2?

Yes. There's a portion of that, that extends into Q2 as well, roughly about half.

Okay. And you've had a couple of sales in the last quarter. Do you intend to continue selling -- continue to sell some of the older vessels?

Yes. That is very much the -- sorry? Yes?

Yes. So you continue to -- you plan on continuing to sell some of the older assets?

Yes. The line is a little bit poor. But as I heard your question, you asked if we were going to divest more vessels going forward, and the answer to that is yes. We are looking to divest the oldest tonnage we have in the fleet, primarily our Panamax vessels.

Okay. And one other question on the period cover. Do you plan on keeping the period cover into 2022 at, I don't know, a level of [25%] to 35%? Or how do you feel about that going forward throughout the year?

I think it's too soon to say what we will do for next year. I think the plan we have made here has been to get through this year with maximum capitalization on the good markets while preparing for the first quarter. As we speak today, these numbers that we have achieved for our Q1 are not possible to achieve any longer. So we feel that there's not value in dipping into that now.

So the position we have right now, we are happy about, and we are confident going into Q1 with that. Then we will revisit when the market, hopefully, as we expect it will, picks up from -- hopefully, during Q1 or the end of Q1 and during Q2. And then yes, we will then continue to take cover as and when we see it is a good price and -- versus the risk. But how much and how little, I can't sit and say here today.

Okay. Appreciate that. Regarding the scrubbers in the waste treatment system, do all -- is the fleet 100% have scrubbers in the waste treatment systems? Or are there any more investments planned for that?

No. We have -- let's see here, we have 33 of our Capes fitted with scrubbers. And that's good to have now. That give us usually an extra earning of a couple of thousand per day. But we don't deem scrubbers as a technology for the future, so it's not something we are going to invest more in. If we are investing or when we are going to invest in upgrades of the vessels, we will look for different solutions that are also bringing down emissions at the same time.

Okay. I appreciate that. And again, fantastic quarter and performance that set us up for a good fourth quarter as well and into next year.

Thank you for calling in.

(Operator Instructions) And at this time, we have no further questions. Please continue.

Okay. Thanks, everyone, for dialing in, and we will hope to hear you dialing in in the next quarter as well. Thank you.

Thank you.

That concludes the presentation today. Thank you for participating. You may disconnect.