Golden Ocean Group Limited
Q3 2021 Earnings Call Transcript

Published: 24 Nov 2021

[Operator:]

Good day and thank you for standing by. Welcome to the third quarter 2021 Golden Ocean Group Limited earnings conference call. At this time, all participants are in listen-only mode. After the speakers’ presentation, there will be a question and answer session, and to ask a question, you will need to press star, one on your telephone. Please be advised today’s conference is being recorded. If you require any further assistance, please press star, zero. I would now like to hand the meeting over to your speakers today and Ulrik Andersen. Please go ahead.

[Ulrik Andersen:]

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’re 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 and 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 seven Kamsarmaxes. Securing new vessels has allowed us to divest older tonnage, and this quarter we sold two 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 and 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 in details and have a closer look at the Q3 financials. Peder, over to you, please.

[Peder Simonsen:]

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 were $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 one ship drydock in this quarter versus three ships in Q2, which resulted in 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 drydocked this quarter. We continue to see COVID-19 impacting our operating expenses, which we estimate to around $350 per day impact in Q3, the cost 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 reflects 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 c chartered in tonnage and higher trading activity. Depreciation was also impacted by the addition of new ships during Q2, as well as our net financial expenses where we saw higher average debt levels 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 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, Swiss Marine, and a total positive result--and results from associates of $11.1 million. Our marketable securities was down by $0.4 million, which relates to our shareholding in . 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. As Ulrik mentioned, a 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 $12.9 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 dividends relating to the second quarter results. Looking at our balance sheet, we had a cash position of $262.5 million, which includes the $20 million restricted cash balance which secures our interest rate and FFA derivatives portfolio. We have 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 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 seven modern Kamsarmax ships that will deliver from mid 2023. This is part of our fleet renewal program, where we also sold off four ships during the year, predominantly in our older Panamax segment. We have to date of this report paid one third of the estimated 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.

[Ulrik Andersen:]

Thank you Peder. Now let’s turn the attention to the market development in Q3 on Slide No. 10. Q3 was a positive quarter with a 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 three main drivers were

[Operator:]

We have a question from the line of William Fraser. Please go ahead.

[William Fraser:]

Yes, good morning. Fantastic quarter. Congratulations.

[Ulrik Andersen:]

Thank you.

[William Fraser:]

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

[Ulrik Andersen:]

Yes, there is a portion of that that extends into Q2 as well, roughly about half.

[William Fraser:]

Okay, and you had a couple sales in the last quarter. Do you intend to continue to sell some of these older vessels?

[Ulrik Andersen:]

Yes, that is very much the--sorry?

[William Fraser:]

So you continue to--you plan on continuing to sell some of the older vessels?

[Ulrik Andersen:]

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.

[William Fraser:]

Okay, thank you. 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?

[Ulrik Andersen:]

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 I speak today, these numbers that we have achieved for our Q1 are not possible to achieve any longer, so we feel that there is 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 versus the risk. But how much and how little, I can’t sit and say here today.

[William Fraser:]

Okay, appreciate that. Regarding the scrubbers in the waste treatment system, is the fleet 100% have scrubbers in the waste treatment systems, or are there any more investments planned for that?

[Ulrik Andersen:]

No, we have--let’s see here. We have 33 of our Capes fitted with scrubbers, and that’s good to have now - they give us usually an extra earning of a couple 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.

[William Fraser:]

Okay, I appreciate that, and again, fantastic quarter and performance. You’ve set us up for a good fourth quarter as well and into next year, so again thank you very much for taking my call, and have a nice holiday.

[Ulrik Andersen:]

Thank you. Thank you for calling in.

[Operator:]

Thank you. Once again, it is star and one for any questions. At this time, we have no further questions. Please continue.

[Ulrik Andersen:]

Okay, thanks everyone for dialing in. We will hope to hear you dialing in in the next quarter as well. Thank you.

[Peder Simonsen:]

Thank you.

[Operator:]

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