2020 Bulkers Ltd

OSE:2020

Earnings Call Analysis

Earnings Call Transcript 2023-Q4

[Operator]

Hi, everyone, and welcome to 2020 Bulkers Q3 report. [Operator Instructions] This call is being recorded.

I'll now hand it over to your speakers. Please begin.

[Lars Halvorsen, executive]

Thank you, operator. Welcome, everyone, to the Fourth Quarter 2023 Earnings Conference Call for 2020 Bulkers. As usual, I'm also joined here today by our CFO, Vidar Hasund.

Before we start the presentation, we would like to remind you that we will be discussing matters that are forward-looking in nature. These forward-looking assumptions are based on the company's current views with regards to future events and are subject to risks and assumptions subject to uncertainties. Actual results may differ materially.

And with that, I will move over to the highlights for the quarter.

2020 Bulkers generated net profit of $14.8 million in the fourth quarter. This reflects the strong improvements in rates from the third quarter. We, again, outperformed the Capesize Index and achieved average TCE earnings of around $36,500 per day compared to the Baltic Capesize Index, which was around $28,100 per day.

For the months of October through December, we made total cash distributions of $0.59 per share, reflecting an approximate 17% annualized yield on today's share price. Today, we also announced a cash dividend of $0.10 for the month of January. That's up from $0.01 in January last year. Trading so far has been good, with average earnings for the fleet at $27,100 per day in January.

And with that, I will leave it over to Vidar.

[Vidar Hasund, executive]

Thank you, Magnus. 2020 Bulkers reports a net profit of $14.8 million for the fourth quarter of 2023. Operating profit was $17.9 million, and EBITDA was $20.7 million for the quarter. Earnings per share was $0.65. Revenues were $26.3 million for the fourth quarter, and the average time charter equivalent rate was approximately $36,300 per day, gross. The company recognized additional $0.3 million in insurance settlement as other operating income in the fourth quarter. .

Vessel operating expenses were $4.5 million, and average operating expenses per ship per day was approximately $6,000 in the fourth quarter. G&A for the fourth quarter was $0.8 million. 2020 Bulkers charged Himalaya Shipping $0.2 million in management fee for the fourth quarter, which is recognized as other operating income in the financial statements. Net financial expenses were $2.5 million, including interest expense of $2.8 million in the fourth quarter.

Shareholders' equity was $161 million at the end of the quarter. Interest-bearing debt was $206.5 million at the end of the fourth quarter, down from $210.2 million at the end of the third quarter, reflecting scheduled debt repayments. Cash flow from operations was $22.9 million for the fourth quarter. Cash and cash equivalents were $30.7 million at the end of the quarter. The company declared total cash distributions and dividends to shareholders of $0.59 per share for the months of October, November and December 2023.

That completes the financial section. And now back to you, Magnus.

[Lars Halvorsen, executive]

Thank you, Vidar. Summarizing the market development through 2023 and so far in 2024, there are a few themes worth mentioning. The capesize market saw good demand growth throughout the year, with ton-miles expanding close to 5% compared to 2022. The slightly unusual thing is that we didn't see the normal seasonal strength during Q3 as the market was absorbing the unwinding of congestion that had built up during COVID.

As waiting times bottomed out late in Q3 and with limited fleet growth paired with strong iron ore volumes out of Brazil as well as strong bauxite volumes out of West Africa, the market tightened significantly during Q4, averaging $28,100, up from $13,400 during the third quarter. The strength has continued into Q1, with average rates year-to-date in excess of $20,000 per day. This compares to $8,000 per day for the same period last year. In fact, rates today are very healthy at what's usually around the seasonal low for the Capesize markets. We have to go back to 2010 to see similar rates at the same time of the year.

Here, we take a look at our illustrative dividend capacity. We currently have 5 ships on fixed charter in February as well as 2 ships fixed for March, with another 2 ships going through their 5-year special survey in early March. However, from April 1 onwards, all our ships are exposed to floating rates. And as an illustration, the FFA curve for the balance of the year currently sits around $23,000 per day, which, for illustrative purposes, would represent an annualized free cash flow potential of around NOK 25 per share or just under 18% based on the current share price.

In terms of the market, we mentioned that ton-miles grew by 4.8% last year. This was mainly driven by a 30% increase in ton-miles for bauxite, while iron ore ton-miles grew 3.8% and coal ton-miles contracted by 1.4%. As also mentioned, during the year, we saw a sharp unwinding of congestion from all-time high levels, and we're now back at what we describe as more normalized levels.

Looking at the iron ore market. China, in spite of the challenges the economy is going through, increased its iron ore imports by 6%. At the same time, iron ore inventories actually fell on a year-on-year basis. Today, Chinese iron ore port inventories are around 140 million tons compared to 125 million tons a year ago.

Over to the steel market. Global steel production for 2023 was up by 0.2% compared to 2022. This was broken down on the world ex China being down 0.7%, while Chinese steel production increased by 0.9%. It's worth noting that in recent months, we've seen an improvement in the year-on-year growth rates for the world ex China. Whereas, China has been slightly volatile and last month was down in the double digits.

Quite important thing is still the supply side. And as mentioned before, we are entering a very interesting, if not unprecedented, situation on the supply side in the capesize market. The order book is just over 5%, which is a historical low. And it's also quite interesting to look at the order book in nominal terms compared to the existing fleets that eventually will have to be replaced, knowing that yard capacity is probably down 30% since the last peak in the capesize order book.

Lead times for new orders are continuing to increase, and there are various few slots available before 2027. There's even been some orders placed for as far out as the second half of 2028. So in summary, we have positioned the company for a strong spot market from April onwards. This is on the back of ongoing strong demand growth, paired with low supply growth.

And with that, I will leave it over to the operator for questions.

[Operator]

[Operator Instructions] The first question will be from the line of Bendik Nyttingnes from Clarkson Securities.

[Bendik Folden Nyttingnes, analyst]

Congratulations on a strong fourth quarter. You were spot exposed completely by the start of the second quarter, and as you mentioned, the FFA for the remainder of the year is pretty strong at around $23,000 per day. How are you thinking about TCE coverage going forward?

[Lars Halvorsen, executive]

I think -- it's obviously something we literally think about and look at every day. I think what's quite easy to answer is we took some coverage into Q1, which is usually the seasonally weakest part of the year. And I think it's fair to say it surprised a bit on the upside, but we view that as buying insurance. You really don't know if you're going to need it, but it's nice to have if you do need it. And for the remainder of the year, I think we are quite constructive on the market.

I think we've been even -- as we touched upon, in an environment with very strong ton-mile growth, even with China, which is, of course, all the worries many have, struggling. And I think now order -- well, new deliveries will be less for each of the 3 next years than we had last year and the year before. And we don't have any hidden supply. We think really, in terms of congestion, although it's come up from the sort of lowest levels we saw in the end of Q3, early Q4, it's in what I would call the normal range pre-COVID. So we want to be as spot exposed as possible for the time being to see how far this will carry.

And I think, yes, of course, the rates you mentioned that you can fix, now Q3 is $23,000, et cetera. I mean if you go back in recent years, you go back to '21, which is the last year we have a more buoyant market, you had Q2 averaging north of $30,000, you had Q3 and Q4 averaging in the $40,000. And we are -- I think if you look at there as a whole, it's the highest rate it has been for -- on a year since 2010. So although they are not bad rates, what's available in the FFA market, we don't see any rush to lock in anything more for the time being.

[Operator]

As there are no more questions, I'll hand it back to the speakers for any closing remarks.

[Lars Halvorsen, executive]

Yes. Thank you, everyone, for dialing in and listening. And if you had a question that you forgot to ask, please send us an e-mail or give us a call. And we will see you next quarter. Thanks a lot and take care.