Golden Ocean Group Ltd (GOGL) 2021 Q4 法說會逐字稿

Thank you for standing by, and welcome to the Q4 2021 Golden Ocean Group Limited Earnings Call. (Operator Instructions) I must advise you that your conference is being recorded today. I would now like to hand over to your speaker, Mr. Ulrik Andersen, CEO. Please go ahead, sir.

Good afternoon, everyone. Welcome to this Q4 release. My name is Ulrik Andersen. And next to me, I have Peder Simonsen, our CFO. Today, we are here to present to you our Q4 numbers and give you an understanding of what has happened and where we're going. What we will show you during the next 15 or 20 minutes is that we have capitalized on the strong Q4 while securing attractively price cover for the first half of this year, 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 above $240 million, which translated into a net income of $204 million or $1.02 per share. This is the best quarterly result in the history of Golden Ocean. We also sold 2 Panamax vessels at attractive prices as part of our renewal and decarbonization strategy. As we will show later, the net proceeds from the sale cover the first installment under our 7 Kamsarmax newbuilding program.

We report TCE rates of $39,300 per day for the Capes and $29,600 for the Panamaxes. Looking at this quarter, Q1, we have so far secured $26,000 per day for 75% of our Cape days, $21,000 per day for 72% of our Panamax days. Looking into Q2, we have secured $31,000 per day for 22% of our Cape days and $23,000 per day for 14% of our Panamax days. Finally, we announced a dividend of $0.90 per share. This is our fourth quarterly payout and underlines our strong belief in the market. It will take dividends relating to 2021 to $500 million.

Now let's dive into the numbers and details and have a closer look at the Q4 financials. Peder, over to you, please.

Thank you, Ulrik. If we move to Slide 5, we can have a look at our P&L results. In Q4, we recorded TCE revenues of $306.5 million, which was flat from the previous quarter of $306.7 million. This is the result of strong performance from all segments. As Ulrik mentioned, we recorded $39,300 in TCE rate for the Capes, which was up by $1,200 from the previous quarter. This compares to our cash breakeven rate of $12,800.

On the Panamax and Ultramax vessels, we recorded $29,600, which was up by $4,900 from Q3. For these ships, we have an average cash breakeven of $8,600. Our total fleet TCE was $35,300 in Q4 versus $32,300 in Q3. We had 5 ships dry-docked in Q4 versus 1 ship dry-docked in Q3, which resulted in approximately 200 days or 2% off-hire versus 85 days in Q3. We have 5 ships due for dry docking in Q1 2022.

We recorded as in the previous quarter, a sales gain of $4.9 million, which in Q4 related to the Golden Endurer, as previously announced.

Looking at the ship operating expenses. We had an increase in operating expenses of $5.2 million. This increase was mainly a result of more dry dockings, which we expensed and also one-off insurance deductibles and COVID-19 costs, which continue to impact the results. OpEx ex dry-docked was $5,950 in Q4 versus $5,500 in Q3, and dry dock represented $620 per day versus $100 per day in Q3.

Looking at our overhead costs. we had $4.8 million in G&A, which was slightly up from the previous quarter at $4.6 million, but we maintain the best in the industry level on our overhead costs. The daily G&A came in at $517 per day net of recharge. And this was impacted by profit sharing accruals of approximately $100 per day and reclassifications of approximately $50 per day.

Looking at our charter hire expense. This was down from $31 million in Q3 to $11 million in this quarter, which reflected lower trading activity with chartered in tonnage in Q4. This netted to an adjusted EBITDA of $243.5 million versus $229.4 million in Q3.

Moving to our financial expenses. We had $10.4 million in net financial expenses, which was $400,000 down from the previous quarter. And this was the result of lower credit margins on our refinanced credit facilities that we closed in Q3. On our derivatives and other financial income, we recorded a gain of $10.1 million compared to a gain of $16.1 million in Q3.

Our mark-to-market result on our FFA portfolio came in at a loss of $2.9 million, while our interest rate swap portfolio recorded a gain of $4.1 million, resulting in a net derivatives result of $1.2 million versus $5.6 million in Q3. The results from investments in associates, we recorded a gain of $9.9 million versus $11.1 million in Q3. The main contributor is the share of results from the dry bulk operator, SwissMarine, of $8.9 million. And our other investments such as UFC and TFG contributed with another $1 million.

We recorded a loss on marketable securities, which consisted of our shareholding in Eneti of $2 million this quarter. And finally, we recorded a dividend from the Norwegian War Insurance Association, DNK of $1.1 million. This resulted in a net profit of $203.8 million or $1.02 per share versus $195.3 million and $0.97 per share.

Taking a quick look at our full year 2021 results. We recorded $31,300 per day TCE for our Capesize Newcastlemax fleet and $22,500 per day on our Panamax, Kamsarmax and Ultramax fleet. Our fleet-wide TCE for 2021 was $27,600. This resulted in a TCE revenue of $948 million and EBITDA of $658 million and a full year net profit of $527 million or $2.74 per share.

Moving to Slide 6. We can have a look at our cash flow for the quarter. We recorded a net decrease in cash of $54.4 million. We recorded a cash flow from operations, which was up by $18.7 million from the previous quarter to $219.2 million in Q4. Our cash flow used in financing was aggregate $269.2 million. This consisted of scheduled debt and lease repayments of $34.5 million. We recorded a $14 million debt repayment related to the sale of the 2 Panamax vessels that were delivered during the quarter, and we also repaid $50 million in revolving credit facilities. We also paid $170.4 million in dividend relating to the Q3 results.

Moving to our cash flow and investments. They came in at $2.4 million. As Ulrik mentioned, the sales proceeds from the sale of Golden Endurer and Golden Opportunity of $36.3 million matched the investments of $36 million in installments for the 7 Kamsarmax ships that we have under construction. In addition, we had ballast water treatment investments related to the dry dockings that we did during the quarter of $2.8 million.

Moving to Slide 7. We can have a look at our balance sheet. At quarter end and year-end we recorded cash of $210 million, which includes $13.1 million in restricted cash related to our derivatives portfolio. In addition, we have $100 million in undrawn and available credit facilities at quarter end. Our debt and lease liabilities totaled $1.4 billion at quarter end, and our book equity was $1.9 billion. With a total assets of $3.5 billion, the ratio of equity to total assets came in at approximately 56%.

Looking at our committed CapEx and debt maturities on Slide 8. We can see that we have marginal remaining CapEx when we assume a 55% leverage on the newbuildings once delivered. Our remaining CapEx -- equity CapEx stands at approximately $65 million, of which $22 million have also already been raised through vessel sales. We had cash and liquidity -- available liquidity at year-end at about $300 million. And with the low leverage and young fleet, we have significant access to attractively priced funding for refinancing that come due in the next years and also the funding of our newbuilding program. This gives us the flexibility to allocate capital freely and continue our focus on dividends.

With that, I give the word back to Ulrik.

Thank you, Peder. Turning to Slide 10 and looking at the Q4 market development, then Q4 was another good quarter for the dry bulk owners with Cape rates hitting 87,000 per day. This is the highest level we have seen in more than a decade. Even if rates did cool off, the rates were far exceeding cash breakeven limits during the entire quarter. The 3 main drivers were the continued inefficiencies and congestions, a strong growth in the coal trade and finally, rising Brazilian iron ore shipments.

With that, let's look ahead and turn to Slide 11. The rates have dropped significantly throughout January, caused by a combination of seasonality and a slowdown in Chinese steel production. However, we believe the worst is behind us and that the market will gradually improve as the Chinese steel industry gears up after the Olympics.

Iron ore prices are firming, demand from plants is also supporting while the energy crisis means demand for coal remains elevated. So we remain very bullish for what lies ahead. In fact, the stage is set for a prolonged period of solid demand growth for dry bulk commodities all the way through 2023.

There are many factors influencing the demand for dry bulk but GDP growth has always been one of the best proxies. It is key to remember that for the past 20 years, on average, the demand for dry bulk shipping has been growing, sorry, 20% more than the world GDP growth. So even if GDP growth is tempering off slightly this year, it is, firstly, compared to an exceptionally strong 2021. Secondly, still growth rates that are high compared to the historic average. In our view, the anticipated growth will support a continued strong freight environment.

Turning the attention to the supply side. Also here, developments are looking attractive. 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, naturally setting the scene for an attractive dry bulk market. Going forward, we do not see ordering picking up. The prices are at a historical high level. While there is 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.

This is a quite remarkable situation. Shipping is, of course, cyclic, but usually the downturn is caused by oversupply. Since 1991, the demand for dry bulk shipping has been growing by an average of almost 4% per annum. Only 2 years in that period did it retract, during the financial crisis in '08 and during COVID in 2020. In other words, it is normally the owners oversupplying the market which causes the freight to come under pressure, not the lack of demand. This time, the supply side is well under control, ordering has been muted for some time now and not looking to pick up.

So when we combine the anticipated supply growth with the anticipated demand growth on Slide 13, much point to an extended period of sustainable earnings. The market will be driven by healthy demand growth, combined with exceptionally low fleet growth. This, in itself, of course, is positive. However, disruptions and congestions in the supply chain which was a major factor in the Cape rates reaching 87,000 per day last year are unlikely to unwind anytime soon.

These inefficiencies will continue this year and support a strong freight environment. Further, looking into 2023, which is now we can say around the corner, the new IMO regulations on emissions enter into force. The main venue for compliance for many owners would be slow steaming thus further reducing the effective supply. It is on the back of those considerations, Golden Ocean remain confident that the dry bulk market stands in front of a prolonged period of profitable markets.

At our last release, we were clear that we wanted to hedge the first part of 2022 to mitigate risk, improve visibility and ensure and protect our dividend capacity. Metaphorically speaking, we wanted to build a bridge between the often weaker first half of the year and the expected stronger second half. Therefore, last year, we put a significant part of our fleet out on fixed contracts until and including Q2 this year. It means that as of today, we have in Q1, 74% of the entire fleet covered at rates well above cash breakeven.

In Q2, 22% of Cape days covered at above $31,000 per day, 14% of our Panamax days covered at close to $23,000 per day. All Q2 cover well above the forward market. From Q3 onwards, our spot exposure increases dramatically, in line with our positive market view. We have, however, no ambitious of being a pure spot play, and it is an integral part of our strategy to actively manage our spot exposure like we have done for Q1 and Q2 this year. So we constantly access the market, looking for opportunities to lock in cash flow. We will continue to do this throughout the year.

On the last 2 slides today, we will focus on cash flow generation. Through well-timed acquisitions, economics of scale and access to competitive finance, we have achieved industry low cash breakeven on our fleet. Our average cash breakeven, as Peder mentioned, is 12,800 for the Capes and 8,600 for the Panamaxes. The cash breakeven is all in. It includes amortization, interest, G&A, et cetera.

As it appears on the right-hand side of the graph, our breakeven allows for strong earnings, but at the same time, it also acts as downside protection. The Cape market, for instance, has not been below our cash breakeven levels for very long in the past 5 years. So with our low cash breakeven and the robust market outlook, Golden Ocean's cash flow potential is substantial. As of this week, the blended average of Cape and Panamax futures for the remainder of 2022 and reflecting our ratio of Capes and Panamax vessels was around $25,000 per day.

On an annualized basis that means generating $500 million over our cash breakeven or a yield of more than 23% on the share price. As we know, it is a Board decision what we will do with future earnings. But with no material CapEx and no appetite for newbuildings, it is 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 so far has been the case seeing we have paid out $500 million in dividends relating to 2021.

Before opening for questions, I'd like to shortly wrap up 3 main messages that we are focused on today. Golden Ocean capitalized on the strong Q4 market, making more than $200 million net profit, the best quarter in the history of the company. Golden Ocean has built a bridge between the weaker first half of the year and the expected stronger second half of the year by taking out fixed paying contracts last year. Golden Ocean has paid $500 million in dividend relating to 2021 and dividend continues to be a priority in 2022.

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

(Operator Instructions) We have first questions coming from the line of Climent Molins from Value Investor's Edge.

Congratulations for this quarter. You've done an excellent job hedging the first part of the year, and it seems you remain fully open towards the second half. Could you provide some commentary on what are you seeing in the time charter market for longer-term contracts in the current environment?

This is Ulrik speaking. Thank you for your question. It is not correct that we are fully exposed to the spot market in the second half, we have already some contract cover, and as I also said here on the call, we plan to increase that and manage Q2 -- Q1 and Q2 next year as well. We don't think now is the right time to lock away contracts. So we will do that as and when we see a turn in the market, which we expect to happen here in the following months.

With regards to your question on longer-term cover. It depends a bit on what vessel and size and type. But generally speaking, we are looking at the rates around the forward market for the -- on 12 months basis for Capesize at high 20s, 27, 28, but bear in mind that our fleet is more efficient than standard vessels, we will probably be able to fix now in the lower 30s for 12 months. And whether we plan to take it out? Yes, we do that. But as I just said, we are waiting for later in the year when we think there would be a better proposition.

All right. That's helpful. Your stake in SwissMarine has been performing quite well over the past few quarters. Could you provide some more commentary on that stake and on whether you expect to receive any dividends from the entity going forward?

Yes. We expect to receive some dividends eventually from this entity or this investment. But I cannot sit here today and say when and how much, but we have noted with the pleasure that there's been a strong performance from SwissMarine last year, and we hope there will be a similar good performance this year.

Sounds fair. And turning back to that market, you have a constructive view on the overall market, let's say, but in the press release, you mentioned that fleet productivity decreased by 7% this year. Could you provide some further commentary in congestion in the sector and on your expectation for 2022?

Yes. We do not expect congestion to unwind this year. I mean it was certainly elevated last year due to COVID. And we expect these effects to continue into 2022. In this relation, it's important to remember, there's always a certain amount of congestion and inefficiencies, which usually is around 5%, 6%, 7%. But this year, it has shot up to 9% -- sorry, last year, it shot up.

So there would always be congestion of some sort, of course, and inefficiencies, but we expect this to continue into 2022 and then slowly unwind as hopefully, we battle COVID. And then as I also mentioned here today, the next, can you say reduction of efficiency of the supply we foresee in relation to IMO 2023, where the venue for most owners would be in order to comply to do a cap on the speed of the vessel. And obviously, when you cap the max speed of the fleet, then it means it's less efficient. So we see inefficiencies also coming next year as well. So in short, the answer is yes, we see inefficiencies persist for this and next year. And that will be, of course, a helping hand for the already strong supply-demand balance.

That's very helpful. And I was wondering if are you seeing any effect of higher oil prices in vessel speed?

No. Obviously, we see the effect in our time charter equivalent. So when you have higher bunker costs, you have obviously lower earnings. So there's a correlation there. The flip side of that is that at the same time we are seeing the spread between high sulfur and low sulfur fuel expanding and seeing we have around half of our fleet with scrubbers installed, then we gain from that. But no, at the moment, what we are seeing on -- in terms of speed is determined by the daily market and the earnings are not correlated directly with the oil price or the bunker price.

(Operator Instructions)

There are no further questions at this time. Mr. Ulrik Andersen I hand back to you.

All right. Thank you very much. We want to say thank you for listening in today. And we are always open for questions on our Investor Relations e-mail, if anything, is unclear. Thank you very much, and have a continued good day.

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now disconnect your lines. Thank you.