2020 Bulkers Ltd

Thank you, operator. Welcome everyone to the third quarter 2020 earnings conference call for 2020 Bulkers. As usual, I'm joined here today by our CFO, Vidar Hasun. Before we start the presentation, I would like to remind me that we will be discussing matters that are forward-looking in nature. These forward-looking assumptions are based on the company's current use with regards to future events, and they are subject to risk and assumptions that are subject to uncertainties. Actual results may differ materially. And with that, I'll move over to the highlights for the quarter. 2020 Bolkers generated a net profit of $4.8 million in Q3. We are pleased to deliver our fifth consecutive profitable quarter, having been profitable every quarter following the delivery of our first vessel in Q3 last year. We continued to outperform the Cape size index during Q3 and achieved average time chart equivalent earnings of 22,100 per day. This compares to the Baltic Cape size index, which was approximately 20,700 per day in the quarter. During the quarter, we also resumed our monthly dividends. We announced total distributions of 10 cents per share for the month of July to September, with September dividend being 6 cents per share. Taking a look at our progress so far in the fourth quarter, we're happy to announce a cash distribution of 7 cents today for the month of October. So far this quarter, we have earned approximately 21,700 per day on average across the fleet. Lastly, on November 2nd, we transferred our shares from the Oslo access list to just the stock exchange main list. And with that, I'll leave it over to Vidar.

Thank you, Magnus. 2020 Bulkers reports a profit of 4.8 million dollars for the third quarter of 2020. Operating profit for the quarter was 7.7 million dollars, and EBITDA was $10.6 million. Earnings per share to shareholders was 22 cent. Revenues were $15.7 million and the average time charter equivalent rate was $22,100 per day gross. Vessel operating expenses were $3.9 million, including approximately $0.3 million in COVID-19 related expenses. Vessel operational days were 736 days and marks the first full quarter with all eight vessels in operation. GNA for the third quarter were $0.9 million and included $0.1 million in non-cash share option expense and $0.1 million in costs incurred for the transfer from Oslo Access to Oslo Börse. Net financial expense for the third quarter was $2.9 million and included interest expense of $2.8 million. Shareholders' equity was $141.6 million as of September 30th. Interest-bearing debt decreased from $257.6 million to $253.8 million, reflecting scheduled repayments during the third quarter. Cash flow from operations was $7.3 million in the third quarter. Cash and cash equivalents were $19.4 million at the end of the quarter. On the next slide, we have included key financial numbers showing that 2020 bulkers have been profitable every quarter from delivery of the first vessel in Q3 2019. The last of the eight Newcastle MAX new billings were delivered in June 2020. That completes the financial section and now back to you, Magnus. Thank you, Vidar.

As you can see from this slide, we continue to outperform the Cape size spot index this quarter with earnings of 21,100 per day compared to the Baltic Cape size index of 20,700. If you take a look further back, you'll see that we've outperformed the Cape size index 13 out of the 15 months since delivery of our first vessel. This, we believe, is both a function of the premium our vessels are earning, as well as our history of adding fixed charter coverage in uncertain times to mitigate risk. Looking at our current chartering situation, all our vessels are on charter to strong counterparties. We currently have seven out of eight ships exposed to the spot market for the first quarter, but we may choose to add some additional charter coverage in the coming months. wanted to do a review of our cash break even levels. When this company was founded, we were very focused on protecting the downside through maintaining a low cash break even. We currently budget a cash break even of around 14,400 per day for 2021. This does take into account somewhat higher than normal operating costs related to COVID-19 and crew changes. If you take into account the premium that our vessels are earning compared to standard Cape-sized vessels without the scrubber, we calculate that our spot ships cover their break-even when Cape-sized rates are around 10,000 per day. As you can see from the graph on the right-hand side, the Cape-sized one-year time chart rate has been above that level the vast majority of the time in the last 20 years. Then over to cash distributions. As we're now done with our CapEx program, we're very focused on returning cash to shareholders. We reinstated dividends following the delivery of our last vessel in June, and during the third quarter, we announced a total of 10 cents per share in capital repayments to shareholders. As mentioned earlier today, we have declared a cash distribution of 7 cents per share based on our earnings in the month of October. As you can see on the graph on the right-hand side, which shows our theoretical free cash flow available for distribution to shareholders at various rates, it's worth mentioning that the average rate the last five years for a standard cave size is 14,000 per day, and the last 20 years it's 32,000 per day. This would translate, based on today's charting situation for 2021 and prevailing fuel prices, a dividend potential of seven or 33 kroner per share, respectively. Now we'll take a look at some of the key market drivers you're seeing in our market. China is still the key demand driver in the iron ore market, representing around 70 to 75% of seaborne iron ore imports. After a short setback during the COVID-19 outbreak, Chinese steel production has recovered to record levels, with year-to-date production levels up 11.9% year-on-year. This, in turn, has led to a surge in iron ore imports into China, with year-to-date imports up 11% and October being 15% higher than October last year. In the light of this, we're encouraged to see that iron ore imports are still relatively low, and we believe there is still need for further restocking. Now, taking a closer look at how global steel production has developed post-COVID, you can see that global steel production is already back to pre-COVID levels. This represents a recovery that's been much stronger than what we saw following the global financial crisis. This has so far been driven mostly by China, but we see that the rest of the world is showing improvements month by month as well. Over to take a look at Brazil. As you can see on this slide, there's been a strong recovery in vales iron ore production and in turn Brazilian iron ore exports throughout the year. This is of key importance to the Cape size market as one tonne of iron ore exported from Brazil requires almost three times the shipping capacity of one tonne exported from Australia. For this reason, there's been a very strong correlation historically between Vale's exports and Cape size rates historically. Based on AIS data, we believe that Vale is on track for approximately 87 million tonnes of production for the fourth quarter. This would imply full-year production figures, which is somewhat lower than the 96 million tonnes they would need to meet the low end of their full-year guidance for the year. Should Vala, however, deliver in line with their guidance, we could expect an uptick in exports for the balance of the year, and this in turn could lead to a renewed strengthening of the cave size market. Lastly, we wanted to have a look at the supply side, where the dry bulk order book is around the lowest level seen in three decades. The current order book stands at 6.3% of the existing fleet. This is the lowest level seen for as long as Clarksons has data, which is back to 1996. Ordering activity year-to-date for Cape size and larger vessels has been virtually non-existent. In fact, it hasn't been lower in the last 20 years. We expect new ordering to remain subdued due to less financing available from traditional lenders, as well as technological uncertainties, about future propulsion systems in the light of the long-term decarbonization goals for the shipping industry. Scrapping has also remained healthy even as the market recovered and we're on track for the highest scrapping level seen in the Cape size market in several years. With that, that concludes our market section and I will move over to the operator for questions. Operator?

Thank you. Ladies and gentlemen, we'll now begin the question and answer session. If you wish to ask a question, please press star and 1 on your telephone and wait for your name to be announced. You can cancel your request at any time by pressing a hash key. Once again, the star and 1 for any questions. There are no questions at this time.

Okay, operator, then I think I will thank on behalf of the company the people who dialed in and come up with any questions later please feel free to reach out thank you so much for participating