Golden Ocean Group Ltd (GOGL) 2020 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to the Q4 2020 Golden Ocean Group Limited Earnings Conference call.

(Operator Instructions) I must advise you the call is being recorded today, Thursday, the 18th of February 2021. And I would now like to hand over to your speaker today, Mr. Ulrik Andersen. Please go ahead, sir.

Thank you very much. Good afternoon, and a warm welcome to Golden Ocean's Q4 release presentation. My name is Ulrik Andersen. I'm the CEO of Golden Ocean. I am delighted to present our results today with Peder Simonsen, the company CFO.

In a moment, I will talk about the highlights of the quarter. Thereafter, Peder will present some details on our financial results, and then we will round off today's session with the market outlook and by discussing the announced transaction of acquiring 18 modern vessels from Hemen. After the presentation, we look forward to taking any questions that you may have.

So for the quarter, we achieved an EBITDA of $59.3 million. This resulted in a satisfying net profit of $25.4 million or $0.18 per share. The result was driven by a strong spot chartering performance on both Capes and Panamaxes, combined with our TCE book.

In the quarter, we also signed the Neptune declaration on Seafarer Wellbeing along with some 600 other companies and organizations. Obviously, COVID-19 has impacted the daily lives and well-being of Seafarer in unprecedented ways, and it has caused what we believe to be a humanitarian crisis at sea. Therefore, we are firmly behind any initiative that can alleviate the situation.

We are also disposing off 2 of our oldest vessels, of course, this trimming of the fleet has to be regarded in connection with the deal that we are currently working on with Hemen. And what we are focused on here is modern fuel-efficient tonnage. It is, yes, more efficient, but it's also emitting less CO2 and greenhouse gases. We see increasing regulatory requirements from IMO, the EU and others, but also from our customers that have stronger and stronger desires to decarbonize the value chains. Therefore, we think it's the right strategy to focus on modern tonnage.

Looking at the estimated TCE rates for the first quarter of 2021, we, at the moment, cover approximately at $18,800 per day for 60% of our Cape fleet and $13,100 per day for 77% of our Panamax fleet. With that, I will hand the word over to Peder for the financials.

Thank you, Ulrik. If we look at our profit and loss for the quarter, we achieved [$125] million time charter revenue versus $143 million in the previous quarter. This was due to slightly lower market rates, just down by $2,000 per day approximately on average for each of the segments, but also low to discharge adjustments, particularly on the Capesize ships.

Our total TCE was just below $16,000 per day in Q3. This was also impacted by having 3 ships dry docked in the quarter, which compared to 0 ships in Q3, which brings our off-hire days a little bit up. We have our -- having 8 ships dry docking for Q1.

Regarding our operating Expenses, they were due to mainly the dry dockings mentioned, up by approximately $4 million. Also it was impacted by some increased COVID-related costs, which continues to impact our operations, and in particular, our crew change expenses. We achieved an OpEx of $6,100 on average for the fleet, which compares to a full year OpEx at the same level and slightly up from the previous quarter where we did not dry dock any ships.

Our G&A for the fourth quarter was $4 million, which was largely impacted by one-off personnel expenses. Our charter hire expense was $17.1 million, which moves to a large extent in line with freight rates as we have index -- chartered in ships on index-linked time charters.

Looking at our financial expenses. We had a net financial expense of $9.3 million, which is down, which is a result of lower LIBOR rates in addition to a higher cash position in the quarter, which generated higher interest income.

On the derivatives and other financial income, we resulted in [6.7] positive change. And this was largely due to a change in our derivative position of $2.6 million across all derivative types, both interest rates, FFAs and bunkers. Result from investments in associates of $1.2 million, which largely relates to SwissMarine, our investment in SwissMarine dry bulk operator.

And finally, the sale of SeaTeam, which we have reported, which we reported a gain of $2.6 million. So the net profit, as Ulrik mentioned, was $25.4 million and $0.18 per share. And this resulted in a full year result of $137.7 million loss, which was largely due to the impairment that we did back in Q2 this year.

Going now to Slide 6. I mentioned the strong cash generation this quarter. As you can see, we had an incoming balance of $131 million in cash and a $71.4 million cash increase. Other than that, there was normal developments on the debt and lease sites and very limited investment activities, which then led to a cash position at the end of the quarter of $175 million. And in this, we have a restricted cash position of $22 million, as mentioned previously, which relates to our derivative position.

Moving to the next slide. We have, on our balance sheet, cash position of $170 million, which -- $175 million. We have a debt lease liability of -- sorry, $1.2 billion at the end of the quarter. I can also mention that we, at the end of the -- or during Q1 have repaid our revolving credit facility with $50 million, which we, on an annualized basis, will save $1 million in interest costs.

Our total assets is $2.7 billion at the end of the quarter, largely unchanged and also our equity ratio with 50% is largely unchanged quarter-on-quarter. I'll give word back to you, Ulrik.

Thank you. Let's head to the market review and outlook. Well, Q4 is a long time ago. So I'm not going to spend a long time looking back. But a few quick remarks about the quarter, it started out well. And despite what the graph looks like, a quite dramatic drop. For the Capes, the market stayed above breakeven throughout the quarter. The Panamax market developed more stable. What we particularly took notice of in the quarter was the continued strong Chinese appetite for iron ore, but also the increasing inefficient allocation of coal due to the tensions between China and Australia.

It's a tendency that we believe will continue well into this year. So if we look ahead, which is more interesting, and starting with looking at the demand side, then what we see is that, yes, 2020 was a year like no other. We had global GDP -- drop in GDP across the board. Only China managed to show a positive GDP growth.

We believe that tendency is now reversing. We think that the GDP growth is rebounding strongly in 2021. What we, of course, particularly take notice of is China and India, the 2 largest importers of dry bulk commodities, they stand to grow more than 8% and 11%, respectively. Obviously, that bodes well for demand.

If we look at the supply side, it's also shaping up very positively. In fact, we are looking at the lowest net growth in the fleet in more than 30 years, so standing at just a mere 1.6% this year and 1.6% next year. If you place an order today, it would mean the factor delivery at the end of 2022. So we are looking at around 2 year minimum runway with low influx of new vessels. We have question marks hanging over technology. We have question marks hanging over new regulatory requirements. So we do not expect the order book to grow substantially in the near term.

If we put together and compare the demand growth and the supply growth, then we believe there's a good reason for optimism. The next 2 years, demand will far outpace supply and that should, all other things equal, of course, lead to a stronger freight environment. If we look at 2020, we had a massive demand destruction, yet the average rates for the Capes entered around Golden Ocean's cash breakeven. So with the supply-demand balance chipping now in the favor of the owners, it is a logical expectation that we are going to be profitable in the years to come.

If we turn to Slide #14, we would like to address the recent or at least potential recent acquisition of 18 modern vessels from Hemen. In short, what we see -- or what we believe is that we are buying the right vessels at the right time at the right price. It is a modern and very fuel-efficient fleet. It is performing well above standard Capes due to the larger intake and fuel efficiency. So we think that it's the right fit for us. It's in the same segments that we believe that the largest upside is mainly on the larger sizes.

So if we drill down a little bit into the transaction, what we can see here is that the 10 Newcastlemaxes are highly competitive. They are here described at index 130, but as we have had these vessels in management for Hemen or Seatankers, previously, we have actually managed to fix them at index 138 at times. But this -- but conservatively described, the index 130. On top of that, of course, we achieve a scrubber premium. So we believe these are the right vessels.

We have the same story for the Kamsars. On top of the efficiency, we also have ice class premium because 4 of them are ice class. So all in all, this is a fleet that ties well in with our strategy of being, yes, placed in the last segment and being present in the growing and expanding ice class segment.

What is worth noticing, of course, as well is that this transaction will create instant new revenue streams. 15 of the vessels are already on water, and we will check them over within short, whereas the last 3 will deliver in March, April and June, respectively. This is, of course, a positive.

If we turn to the next slide, I'm talking about why this is the right time. We think this graph very well illustrates that. What it shows is that the asset prices hardly have been cheaper since 1999, except for a few occasions.

If we look at the expectations we have for rebound in the dry bulk demand, combined with buying at a maybe 12-year low, we think this is the right timing. Again, when we look at the potential, we see larger upside for the large segment, not only on freight but also on asset prices.

Turning to Slide #17, we have depicted here another benefit of the transaction. When we take this -- or should I say, if we take this fleet over, we will manage our -- we will be able to lower our cash breakeven with USD 600 per day for the Capesize fleet. This is obviously attractive. And we maintain a very low cash breakeven for our Kamsars at around $8,500 per day.

So on the right-hand side, we have illustrated the cash breakeven. And as it appears, it's extremely attractive already on a nominal basis. However, if you compare it to the efficiency of the fleet, our new combined fleet after the transaction will be around index 120. On top of that, we have a big number of scrubber-fitted vessels, which, at the moment, gives around $2,000 extra earnings per day. So if you account for that, we are actually facing or looking at a cash breakeven when you compare it to the standard Baltic vessel, just above $10,000 per day. We believe that puts us in a very good position.

So what does all that mean in terms of cash flow potential? I think it's fair to say that it puts Golden Ocean in a new league. We have tried to illustrate that on Slide #18. What we see is the cash log generation potential is fairly significant. I don't want to put a number on where the market goes this year. But if we look at the current 1 year TCE market, which I guess is sort of a reasonable thing to look at, it's in the middle. And it's around $21,000. On that, we are looking at generating $280 million over and above our cash breakeven, and that would correspond to a cash yield of 22%.

So the potential here is quite large. Yes, so to sum up a little bit, we think this is a transformational acquisition to Golden Ocean. We are increasing our fleet size with 25%. We're going to have just shy of 100 owned vessels. At the same time, we are bringing down our average age and our market cap is improving by $35 million. Obviously, a large market capital will give us more investor interest and more liquidity. So we think this is a huge benefit as well.

All in all, and to summarize, we feel that the stars are aligning, not only supporting the transaction, of course, for the 18 vessels, but also supporting the prospects for Golden Ocean as a whole. We have high demand growth. We have low fleet growth, and we believe that Golden Ocean is ideally positioned to capture this in the years to come.

That concludes today's session. I will now hand the word over to the operator, and we will be happy to take any questions that you may have. Thank you very much.

(Operator Instructions) We have no questions at this time, sir. Thank you.

Okay. Thank you very much for dialing in.

Ladies and gentlemen, that does conclude your call for today. Thank you all for participating, and you may now disconnect.