Golden Ocean Group Limited

Good afternoon everyone. Welcome to this Q4 release. My name is Ulrik Andersen and next to me I have Peter 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 are going. What we will show you during the next 15 to 20 minutes is that we have capitalized on the strong Q4 while securing attractively priced 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 two 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 seven Kamsomax new building 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. Peter, over to you, please.

Thank you, Ulrik. If we move to slide five, 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. 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 break-even 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 break even of 8,600. Our total fleet ECE was 35,300 in Q4 versus 32,300 in Q3. We had five ships dry docked in Q4 versus one ship dry docked in Q3, which resulted in approximately 200 days or 2% of hire versus 85 days in Q3. We have five 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 expense, and also one-off insurance deductibles and COVID-19 costs, which continue to impact the results. OPEX xDryDoc was $5,950 in Q4 versus $5,500 in Q3, and DryDoc represented $620 per day versus $100 per day in Q3. Looking at our overhead costs, we had 4.8 million in GNA, which was slightly up from the previous quarter at 4.6 million. But we maintain the best in industry level on our overhead costs. The daily GNA 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 results on our FFA portfolio came in at a loss of 2.9 million, while our interest rates 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 investment 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 Swiss Marine of 8.9 million. Our other investments such as UFC and TFG contributed with another million dollars. We recorded a loss on marketable securities, which consists of our shareholding in Enetti, 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, or $1.02 per share, versus 195.3.97 per share. Taking a quick look at our full year 2021 results, we recorded 31,300 per day TCE for our Cape Sison Newcastle MAX fleet, and 22,500 per day on our Panamax, Kamsar MAX and Ultramax fleet. Our fleet-wide TCE for 2021 was 27,600. This resulted in a TCE revenue of 948 million, an 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 two 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 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 seven Campsermax ships that we have under construction. In addition, we had a ballast water treatment investments related to the dry dockings that we did during the quarter of 2.8 million. Moving to slide seven, we can have a look at our balance sheets 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 new buildings once delivered. Our remaining equity capex stands at approximately 65 million, of which 22 million have already been raised through vessel sales. We had cash and 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 new building 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, Peter. 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 Kastberg even levels during the entire quarter. The three 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 grains 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 20% more than the world GDP growth. So even if GDP growth is tampering 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 new building slots before the very end of 2023. It gives us a runway of minimum two 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 two 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 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 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 remains 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 per given. 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 ambitions 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 two slides of the day 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 break even on our fleet. Our average cash break even, as Peter mentioned, is $12,800 for the Capes and $8,600 for the Panamaxes. The cash break even is all-in. It includes amortization, interest, G&A, etc., As it appears on the right-hand side of the graph, our break-even 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 break-even levels for very long in the past five years. So with our low cash break-even and the robust market outlooks, 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 break even, 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 new buildings, 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 billion in dividends relating to 2021. Before opening for questions, I'd like to shortly wrap up the three main messages that we have focused on today. GoldenOcean capitalized on the strong Q4 market, making more than $200 million in net profit, the best quarter in the history of the company. GoldenOcean 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. GoldenOcean 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.

Thank you, Sal. As a reminder, ladies and gentlemen, if you do wish to ask a question, please press star 1 in your telephone and wait for your name to be announced. If you wish to cancel your request, please press the hash or the pound key. Once again, if you have any questions or comments, please press star followed by one on your telephone. We have first questions coming from the line of Cleven Mullins from Value Investors Edge. Please ask your question.

Good morning, gentlemen. Thank you for taking my call and 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?

Yeah, hi. This is Ulrich 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 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 12-month basis for Cape size at high 20s, 27, 28. But bear in mind that our fleet is more efficient than a standard vessel, so we'll probably be able to fix now in the low 30s for 12 months. And whether we plan to check that 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 Swiss Marine has been performing quite well over the past few quarters. Could you provide some overall 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 pleasure that there's been a strong performance from Swiss Marine last year, and we hope there will be similar good performance this year.

Sounds fair. And turning back to the 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 on congestion in the sector and on your expectations for 2022?

Yes, we do not expect... 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 shut up. So there will 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, 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. Thank you. 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 travel equivalent, so when you have higher bunker cost you have obviously a lower earning, so that's a correlation there. On 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 in terms of speed is determined by the daily market and the earnings and not correlated directly with the oil price or the bunker price.

All right, that's all from me. Congratulations again for this quarter.

Yes, thank you for listening in.

Once again, ladies and gentlemen, if you do have any questions or comments at this time, please press star followed by one on your telephone. There are no further questions at this time. Mr. Yorick Anderson, I hand back to you.

All right. Thank you very much. We want to say thank you for listening in today. We are always open for questions on our investor relations email if anything is unclear. Thank you very much and have a continued good day.