2020 Bulkers Ltd

Welcome to 2020 Bolgus 2024 Q2 report. For the first part of this call, all participants are in a listen-only mode. Afterwards, there will be a question and answer session. To ask a question, please press 5 star on your telephone keypad. This call is being recorded. And I will now hand it over to CEO Magnus Halvorsen. Please begin.

Thank you, operator. Welcome, everyone, to the second quarter 2024 Earnings Conference Call for 2020 Bulkers. As usual, I'm also joined here by Vidar Hasun, our CFO. Before we start the presentation, we would like to remind you that we will be discussing forward-looking matters. These forward-looking assumptions are based on the company's current views with regard to future events, and they're subject to risk and assumptions subject to uncertainties. Following the actual results may differ materially. And with that, I'll move it over to the highlights for the quarter. For the second quarter, we report a net profit of $31.5 million and EPS of $1.36. This includes a $20.4 million gain from the sale of bulk soil, which was booked during the quarter. Trading-wise, we performed well, achieving time chart equivalent earnings of around 34,300 per day. This compares to the Baltic 5TC index, which averaged 22,650. We did declare total dividends of 52 cents per share for the months of April through June. Then over to the subsequent events. For July, we announced we achieved time chart equivalent earnings of of approximately 37,600 per day gross. This compares to the Baltic five TC average, which was 25,542. We've also declared a dividend of 20 cents per share for the month of July 24. And with that, I would leave it over to Vidar.

Thank you, Magnus. 2020 Bulkers reports a net profit of $31.1 million for the second quarter of 2024. Operating profit was $32.1 million and EBITDA was $34.4 million for the quarter. Earnings per share was $1.36. Revenues were $38.9 million for the second quarter and included a gain of $20.4 million for the sale of bulk sole. The average time charter equivalent rate was approximately $34,300 per day gross. Basel operating expenses were $3.4 million, and the average operating expenses per ship per day was approximately $6,200 in the second quarter. G&A for the second quarter was $0.9 million. 2020 Burkus charged Himalaya Shipping $0.4 million in management fee for the second quarter, which is recognized as other operating income in the financial statements. Net financial expenses were $0.9 million, including interest expense of $0.8 million. Net of $1.6 million transferred from other comprehensive income relating to amortization of realized gain of interest rate swaps. Shareholders' equity was $160.2 million at the end of the quarter. Interest-bearing debt was $112.5 million at the end of the second quarter. down from $140 million at the end of the first quarter, reflecting the $27.5 million debt repayment in connection with the refinancing of the term loan in April. The sale leaseback financing for BULK Shanghai and BULK Seoul were both settled during the first half of 2024. Cash flow from operations was $10.5 million for the second quarter. Cash and cash equivalents were $19.2 million at the end of the quarter. The company declared total dividends to shareholders of 52 cents per share for the months of April, May and June 2024. That completes the financial section. And now back to you, Magnus.

Thank you, Vidar. Then we'll have a quick look at the market. As you can see here and as discussed on our last call, the Cape size market had a very firm start to the year with rates during Q1 hitting the highest seasonal levels in the decade. The second quarter has also been relatively firm with rates well above last year's levels for the majority of the period. This is driven by overall straight trade volumes. In particular, we've seen Brazilian iron ore shipments up around 8% year to date. And we've continued to see strong bauxite volumes with bauxite tonn miles 14% above 2023 levels. Just to recap our operating leverage, following our asset sales and subsequent refinancing earlier this year, we have an industry-leading cash break-even, which this chart illustrates. We have yielded free cash flow in almost every market in the last 35 years. The low cash breakeven, we believe, gives a good basis for free cash flow that can be paid out as monthly dividends. And it does enable us to run with a high degree of spot exposure if we wish to do so. And here we took a look at the illustrative dividend capacity based on all ships being spot, which is actually the case today, given our positive market view. As you see here, the FFA curve for the remainder of the year is currently around 27,000 per day. which would suggest a potential free cash flow generation on an annualized basis of close to 20% compared to today's share price. Then taking a look again at some of the key drivers in the KPSS market so far this year. Overall ton miles are up 6.3% year to date compared to 2023. And as mentioned, this is mainly driven by a strong increase in ton miles for iron ore, particularly out of Brazil. Oxide volumes are up 14% following more than 30% growth in 2023. For the coal trade, however, volumes are down around 4% year over year. Congestion, which has been a major impact on the market in the last few years, is now down to slightly below average levels. I think it's fair to say it thereby represents an upside risk should we see an increase in inefficiencies. The key commodity traded in the Newcastle Max market is iron ore. Iron ore imports into China, the biggest market, is up 6% in 2023 year to date, with July growing 12%. On a slightly more negative note, we see that China has been building inventories, which are currently at the high end of the last five years, both normally and seasonally. Then taking a look at the second most important driver in the market this year, which has been the bauxite trade. And as you can see, most of the air has tracked meaningfully above last year's volumes. And bauxite today represents more than 10% of the tonne miles we see in the Cape Sison and Newcastle markets. What we find encouraging for the coming months is that there is a strong seasonal pattern where typically Q4 sees the biggest exports out to Guinea. And these are bookings we would expect to be done over the coming weeks for the initial part of that high season. And we think we might see a pattern similar to last year, where Q4 is seasonally the strongest one, driven by both the Brazilian volumes on iron ore, but also of the bauxite out to Guinea. Then having a look at the steel market, I think there's no secret that There are macro headwinds in China, and we see that Chinese steel production is down around 2.2% year-over-year. On a more positive note, we see that the global steel production ex-China is up 4.3%, which actually leads to a marginal growth for the steel production overall globally. Then, of course, We keep repeating it, but it's important. We are in a very favourable supply-side environment. The order book is around the closest we've seen in 30 years. And if you look at yard capacity, which is down in the number of active shipyards, probably 50%, in terms of building capacity, probably 30%. the nominal order book is at the same level as when the fleet was one fourth of the size. So we think we have very good visibility in the coming years. And just looking at what the yards are offering in terms of potential new build slots, we see that it's around 80 million for a standard Newcastle Max with a scrubber. And I would really say you have to look into 2028 if you want to order a new vessel today. And we think as long as there is demand for containers and tankers, the yards will continue to favor building those, which should mean that we're unlikely to see the number of available slots increase or the prices decrease meaningfully for new CastleMax and new build orders. And I think with that, we will end the presentation part and leave it over to the operator for questions. Operator?

Thank you. If you do wish to ask a question, please press five star on your telephone keypad now. To withdraw your question, you may do so by pressing five star again. The first question is from the line of Bendik Nyttingen from Clarkson Securities. Please go ahead. Your line will now be unmuted.

Hello, Bendik. I think Looking back to last presentations, you talked about how bringing this cash rate even down to such a low level would allow you to go spot more or less entirely throughout the season. However, when you look at the exercise for the first quarter, which is only biggest quarter first quarter 25, 17-ish thousand dollars per day, do you start getting tempted to take some coverage? I mean, you'd generate about 10% in annual dividend yield at those rates.

Well, I think, as you said before, we always monitor this quite closely, but I think the dynamic in the market has probably changed a bit given the um now very solid trade flows you're seeing on bauxite in q4 and q1 and i think if you look at q1 this year we averaged 24 000 that was in part due to the bauxite volumes and and also of course a little bit drier in brazil um so i i'm not sure that 17,000 is a level. I'm not saying they're bad levels, but they're not necessarily levels where we don't think there could be significantly more upside. So for the time being, though, we're not particularly interested in locking in that. And of course, as you alluded to, should the market be lower, uh we have a cash break even which means we have should have no problem servicing that whatsoever so it's not really tempting to give away that optionality given the volumes we're expecting to see on the box side front in q1 for the time being of course if the curve moves to a different level we we may change our mind but that's the view today

Brilliant. And just, I guess, I know the answer to this already, but the future of 2020, you now have six investments, you have a low cash break even, sort of looks like just a steady cash cow type of company. You're being rewarded for that with your share price as well compared to key pairs. I mean, is there anything... If you were able to sort of change the setup, is there anything you'd do differently?

No, I think we are quite happy with the structure the way it is today. And I think the company is financially structured along with what we have been communicated. And we run the company along with what I think our shareholders expect. I think what we... We will, of course, always, if we were to get into a position where we could do deals with similar assets, that would enhance our dividend capacity per share without increasing the risk of the company. Of course, that's something we'd consider, but it's not something I think we're in a position to do right now. So for now, I think you should assume its status quo in terms of running the fleet as well as possible paying out the cash but at the end of the day we are always out there to do make the best risk adjusted return for the investors so if asset values and or share price moves in a way where we could do accreted deals of course we would look at that but we're also happy to stay the size we are if that's what we think makes more sense.

Yeah, that's totally what I thought as well. Thank you, guys.

Thank you. And let me just remind you that if you wish to ask a question, please press five star on your telephone keypad now. And the next question is from the line of Dimon Monins. Please go ahead. Your line will now be unmuted.

Good afternoon. Thank you for taking my questions. I wanted to start by asking about the Simandou mine, which is expected to come online in late 2025. Could you provide some commentary on your expectations for the mine and the market impact it should have? And I'm especially interested on who you expect to import most of the volumes mined in Guinea.

I missed the last part of your question.

You said you are particularly interested in... To know who you expect to be the main importer of those volumes.

Yeah, no, I think... You know, if you look at this project, it's being funded in part by Chinese interest. And I think we do expect that China will be the biggest buyer of these volumes. And that, of course, should have a positive impact on ton miles and our markets, because these are I think, except from seven islands in Canada, which is more of a trade in the summer, it's probably the longest ton miles in the market going to China. And I think, you know, when it comes to our view on the progress of the project, we will defer to to what the stakeholders in the project are saying. And I think on the most recent call, it was alluded that it's on track and it will start gradually ramping up from 2025. So I can't give an impact in terms of rates, etc. But it's no doubt that assuming these volumes are going to Asia, it will have a positive effect on the markets.

That's very helpful. Thank you. And Brazilian iron ore exports have been very solid year to date. But what are your expectations for the remainder of the year? Do you expect the high inventories in China to potentially to lower exports?

I think what we have seen over the last few years, at least, is that the volumes that Brazil have been able to ship have been going to China. And I think even if we had a pretty strong start to the beginning of the year, just assuming Brazil were to end up flat on last year, we should still see an increase in the shipment rates for the balance of the year. So I think we do still believe that seasonal effect will take place. And as we talked about, combined with bauxite volumes, we would expect to see the strongest trade volumes for the year in our markets during the second half and with an emphasis on the fourth quarter. Thanks for the call. And then, of course, depending on how far out you look, but by 2026, Vale has expressed that they are looking to increase their capacity by 50 million tons. So it's not only the Simondur project with 60 million tons in phase one and 50 million in phase two. It's also Vale on the other side of the Atlantic. And I guess what they have in common is that they have the furthest shipping distance going to Brazil. And of course, tonn miles is the important thing. I think, you know, rule of thumb, one ton from either West Africa or Brazil requires at least three, maybe three and a half times the shipping capacity of one ton from Australia. So I think that's going to be a support for the ton miles in, let's say, the next two years, all else equal.

That's very helpful. Thanks for the call. That's all from me. Thank you for taking my questions.

You're welcome.

And as a last reminder, if you do have a question, please press five star on your telephone keypad. It does not seem like we have any more questions, so I'll hand it back to you again, Magnus.

Okay, I think if there are no further questions, we'll thank everyone who dialed in. And if you forgot to ask a question, please reach out afterwards. Thanks so much.