Golden Ocean Group Limited Interim Report March 2008

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

17 May 2008

Golden Ocean Group Limited Friday reported net income of $53.7 million and earnings per share of $0.19 for the first quarter of 2008. This compares with net income and earnings per share of $25.2 million and $0.09 respectively for the first quarter of 2007. Total operating revenues for the first quarter were $223.3 million, total operating expenses were $161.8 million and net other expenses were $7.9 million. Cash and cash equivalents decreased by $139.7 million during the quarter. The Company generated cash from operating activities of $54.1 million and used for investing and financing activities $111.9 million and $81.9 million respectively. This includes part payments on newbuilding instalments of $114.4 million. During the first quarter the Company repaid $34.5 million in debt and borrowed an additional $57.3 million. In addition the Company purchased its own shares in the amount of $15.9 million.
On May 15, 2008 the Board has declared a dividend of $0.55 per share. The record date for the dividend is May 30, 2008, ex dividend date is May 28, 2008 and the dividend will be paid on or about June 5, 2008.
At March 31, 2008 the total number of shares outstanding in Golden Ocean was 276,540,107 of $0.10 par value each.
Corporate and Finance
In January 2008, the Company agreed to sell one of the Capesize newbuildings contracted in December 2006 at Daehan Shipbuilding Co., South Korea. The vessel is sold for net sale proceeds of $121.4 million and delivery to the buyers is expected to take place in August 2008. The transaction will give a positive result of approximately $46.4 million.
In January 2008, the Company acquired 3.5 million of its own shares. The shares were acquired at an average price of NOK 25.43 per share. These shares have been cancelled by the Company. Initially the Board approved the purchase of up to a total maximum of 27.2 million shares. After the cancellation of the 3.5 million shares this authority does now include 23.7 million shares.
In January 2008, the Company fixed out on time charter two of the Kamsarmax newbuildings from Zhoushan Jinhaiwan Shipyard in China. The vessels will be delivered to their charterers during the second half of 2010 for a period of five years and the agreed time charter hire is $28,000 per day less 5% commission.
In January 2008, the Company fixed out on time charter the Panamax vessel Golden Lyderhorn. The vessel were delivered in March to its charterer for a period of 30-36 months and the agreed time charter hire is $51,000 per day less 5% commission.
In February 2008, the Company fixed out on time charter the Capesize vessel Channel Navigator. The vessel will be delivered to its charterer by the end of April 2009 for a period of 5 years and the agreed time charter hire is $53,500 per day less 3.75% commission.
In February 2008, the Company fixed out on time charter one of the Capesize newbuildings contracted at Zhoushan Jinhaiwan Shipyard in China. The vessel will be delivered to its charterer during the second half of 2009 for a period of 10 years and the agreed time charter hire is $40,500 per day less 3.75 per cent commission. The charterer has been granted an option to purchase the vessel for $92 million on completion of the time charter period.
In February 2008, the Company acquired two newbuilding contracts at Zhoushan Jinhaiwan Shipyard in China. In addition the Company has an option to acquire an additional two vessels. The vessels of 80,000 dwt will be delivered during 2011 and are sister vessels of the series ordered in October 2007. The delivered cost for the vessels is estimated to be about $52 million per vessel.
In February 2008, the Company fixed out on time charter the Panamax vessel Salvatore Cafiero. The vessel will be delivered to the charterer by the end of June 2008 and will be on time charter for the remaining of the “Time Charter in” period (September - December 2010). The agreed daily time charter hire is $62,000 less 5% total commission per day against a cash break even rate of $17,500 per day.
In April 2008, the Company declared the options to purchase two Karmsarmax vessels at Zhoushan Jinhaiwan Shipyard in China. The vessels of 80,000 dwt will be delivered during 2011 and are sister vessels of the series ordered in October 2007. The delivered cost for the vessels is estimated to be about $52 million per vessel.
In April 2008, the Company agreed to sell the Panamax vessel "M/V Bellflower". The vessel is one of the long term time charter vessels previously acquired from Louis Dreyfus with a purchase option attached to the time charter contract. The vessel will be delivered to the Buyers within the end of February 2009 and the agreed purchase price is about $76 million net. The strike price for the option is about $22 million net and the transaction will thereby free up approximately $54 million in cash liquidity. The transaction will give a positive result of approximately $31 million, and this will be recorded at delivery of the vessel.
In April 2008, the Company fixed out on time charter one of the Jinhaiwan Capesize newbuildings. The vessel will be delivered to the Charterer during the second half of 2009 for a five years time charter contract. The agreed daily time charter hire is $51,000 less 5 per cent total commission. The cash generated from this time charter contract is expected to write down the investment to zero during the charter period.
The Market
The downward trend in the market which took place towards the end of last year continued into first quarter of 2008. When the Baltic’s broadly based Dry Index bottomed out on the January 29. 2008, almost 30 per cent of its value had been lost since the start of the year. For the Capesize segment specifically it had shed almost half of its daily time charter revenue in the spot market.
However, the market recovered and even though the average earnings ended well below the fourth quarter of 2007, it was still 50 per cent higher than the similar quarter in 2007.
The Capesize market averaged at $117,500 per day in the first quarter of 2008 against $175,000 per day for the fourth quarter of 2007. The corresponding numbers for Panamax were $58,200 per day for the first quarter of 2008 against $82,500 for the fourth quarter of 2007.
There are some obvious reasons for the retrenchment in earnings for dry cargo Owners:
- An accident at the Itaguai terminal in Brazil and a decision made by Vale to postpone or cancel a number of shipments led to lower “long sailing distance” exports of iron ore.
- The seasonal cyclone activity was quite severe and resulted in flooding in Queensland (Australia).
- Chinese energy shortages due to severe weather and Indonesian rains had an impact on coal transportation.
The total dry bulk fleet had a net fleet growth of 6.1 million dwt which corresponds to 1.5 per cent growth compared to the previous quarter. In total 13 Capesize vessels, 10 Post Panamax vessels and 15 Panamax vessels were delivered during the first quarter of 2008.
Both second hand values and newbuilding contracts were holding steady during the first quarter in spite of the weaker spot market, indicating a positive long term outlook among dry bulk asset investors. We believe that the value of a five year Panamax was $82 million by the end of the quarter while a similar aged Capesize is believed to be worth $142 million.
Our estimate is that a Panamax contract in the first quarter of 2008 was priced at $50 million and a Capesize contract to be priced at $95 million.
Outlook and strategy
The Company has during the last quarter continued its opportunistic asset play by selling one vessel. Further long term time charter contracts at attractive levels have been secured. In addition Golden Ocean has shown its commitment to grow the Company by declaring optional contracts for two Kamsarmax new buildings. The Company has continued to show its ability to benefit from its short term trading capability.
The market has been driven by the Iron ore imports to China reached 42.85 million metric tonnes in April, which was a new single month record. There are reasons to believe that China will beat consensus forecast for their 2008 iron ore imports with a solid margin.
In addition steam coal as energy source continues to grow fast, given the fact that it is economically favourable compared to other energies. It is also considered to be politically “safer” compared to oil.
The steel industry and coal for the energy sector accounts for more than 65 per cent of the dry bulk trade. We believe transportation of commodities related to these two sectors will continue to grow by around 10 per cent this year.
The major challenge going forward is the sizeable order book which now represents 60 per cent of the existing fleet. We do however see more and more delays from the new capacity (“Greenfield”) yards. In addition many yards are facing difficulties to secure “refund” guarantees. Consequently we are of the opinion that the actual delivery program will be reduced and also postponed.
Given the demand and supply factors stated above, we continue to believe that utilisation of the dry bulk fleet will remain high over the next 12 to 18 months. Golden Ocean has utilised the strength in the chartering market to secure good long term charter contracts for forward delivery positions. This has been done to reduce the risk related to the substantial new building commitment the Company has entered into, as well as
securing a strong long term cash flow.
Both for the remainder of 2008 and 2009 Golden Ocean has 32 per cent open capacity within the Panamax segment. Within the Capesize segment there is currently no market exposure. The low cost of the chartered in and owned fleet in combination with attractive financing already secured, has put the company in a strong financial position both to grow the business and increase the dividend capacity to shareholders.
The result for Q2 2008 will be positively influenced by gain of sale of vessels estimated to USD 168 million.
Two of these vessels have already been delivered to new owners, while the last vessel is expected to be delivered by the end of June 2008. The USD 0.55 dividend proposed for Q1 reflects part of the proceeds received from these sales.
The Board is satisfied with the recent developments in the Company and is excited by the Company’s ability to generate strong medium to long term return to shareholders. The results for the second quarter of 2008 will reflect the positive development in the Company as well as the current strength of the market.

Source: Golden Ocean